UPDATE 2-Italy pays near record-low yields in first bond sale under Draghi

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MILAN, Feb 16 (Reuters) – Italy sold debt at near record-low interest rates on Tuesday, riding investor enthusiasm at the appointment of former European Central Bank chief Mario Draghi as prime minister.

Rome is set to raise a total of 14 billion euros ($17 billion) from the sale of a 10-year nominal bond and a 30-year inflation-linked note, one of the banks managing the issue said, adding demand had totalled more than 82 billion euros.

The final size of the order book is well below the record 134 billion euros in demand the two bonds had initially attracted, with many investors dropping out after Italy cut the return on the issues.

The Treasury has set the yield on the new 10-year BTP bond at 4 basis points above the rate of an existing April 2031 BTP note, halving the initial indication of an 8 basis point spread.

With the April 2031 BTP bond yielding 0.568% on the market, Italy looked set to pay the cheapest 10-year yield on record for a syndicated issue – not far from Rome’s lowest-ever 10-year yield paid at auction last November.

The yield on a new 30-year inflation-linked BTP bond was set at 22 basis points over the existing September 2041 BTP linker, down from an initial guidance of 27 basis points.

Italy’s 10-year bond yields fell to a record-low last week after head of state Sergio Mattarella asked Draghi to form a new government.

“I believe that we are looking at a strong BTP sale regardless of the drop in bids we have witnessed in the final terms,” Althea Spinozzi, fixed income strategist at Saxo Bank, said. “Investors are obviously willing to pay up because BTPs continue to trade rich compared to their peers and once volatility in the bond market settles spread compression will resume,” she added.

After weeks of political uncertainty, markets cheered the prospect of the trusted former central banker taking over at a time when Italy is grappling with a resurgent COVID-19 pandemic and its worst recession since the end of World War Two.

Italy attracted final orders, respectively, of 65.5 billion euros for the 10-year tranche and of 16.6 billion euros for the 30-year linker.

The Treasury on Monday hired Citigroup, Deutsche Bank , Goldman Sachs, Monte dei Paschi di Siena Capital Services and Nomura to work on the deal. ($1 = 0.8256 euros)

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