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UPDATE 1-Italy set to raise 10 bln euros after launch of 20-year BTP attracts strong demand

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MILAN, Sept 8 (Reuters) - Italy is set to raise 10 billion euros ($11.8 billion) from a 20-year BTP bond launched on Tuesday after drawing strong demand, a lead manager said.

The government took advantage of relatively stable market conditions to launch the issue, before regional elections in Italy later this month which could trigger more volatility in financial markets.

The bond issue is part of a broader plan to raise funds to counter the economic effects of the coronavirus crisis, with the government expecting the economy to contract by a little over 8% this year.

Bids for the new bond, expiring March 1, 2041, topped 84 billion euros, one of the lead managers said on Tuesday.

“The issue was very positive with the strongest demand on this part of the curve since at least the beginning of the year,” said Filippo Mormando, strategist ad Mps Capital Services.

In April, Italy raised more than 45 billion euros from the reopening of a 30-year BTP bond via syndication and in February a 15-year bond Italian sovereign bond issue drew more than 50 billion euros in orders.

A 10-year BTP bond in June attracted record investor interest, of over 100 billion euros.

Regional and municipal elections are scheduled for Sept. 20-21 and are seen as a potential trigger for renewed uncertainty over the future of Italy’s coalition government.

At the same time, voters will cast their ballot in a referendum over proposed legislation to cut the number of parliamentarians.

Bond market investors are also focusing on the European Central Bank’s monetary policy meeting scheduled for Thursday. No change to the ECB’s policy is expected, but investors will watch its inflation forecasts and messaging around its willingness to deploy its bond purchases.

The Treasury set the yield for the new 20-year issue at 7 basis points over the 3.1% March. 1, 2040, BTP bond, below initial guidance of around 12 basis points.

Italian borrowing costs have fallen sharply in recent weeks, boosted by the EU agreement on the Recovery Fund.

The Treasury said on Monday it had mandated Crédit Agricole, Deutsche Bank, Goldman Sachs, Intesa Sanpaolo and JP Morgan. (Reporting by Sara Rossi, editing by Susan Fenton)

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