Bloomberg News

Italy Sells $8.5 Billion of Bonds as Borrowing Costs Decline

October 13, 2011

(Updates with comments by strategist in fourth paragraph, bond yields in sixth.)

Oct. 13 (Bloomberg) -- Italy sold 6.18 billion euros ($8.5 billion) of bonds, near the maximum for the sale, as borrowing costs fell and demand rose amid European Central Bank support for the nation’s debt.

The Rome-based Treasury sold 3.5 billion euros of bonds due in 2016 to yield 5.32 percent, compared with a yield of 5.6 percent at the last auction of similar securities on Sept. 13. Demand was 1.34 times the amount sold, compared with 1.28 times at the last sale. The amount sold matched the maximum target for the benchmark 5-year bond.

The government won final approval last month for 54 billion euros in deficit-cutting measures that convinced the European Central Bank to buy Italian bonds. The purchases have helped stem borrowing costs that surged to euro-era records on concern that Italy may become the next victim of Europe’s debt crisis.

“The Italian auction went well,” Giuseppe Maraffino, a fixed-income strategist at Barclays Capital in London, said by phone. “The market is starting to believe that Europe is moving, that we will see concrete measures announced, with a reform of the rescue fund and a recapitalization of banks.”

The Treasury also auctioned 588 million euros of 2018 bonds to yield 5.62 percent, and 1.16 billion euros of 2021 bonds to yield 5.77 percent. Also sold were 939 million euros of 2025 bonds to yield 6.34.

Bonds Slide

The auction failed to reverse a slide in Italian bonds, with the yield on the 10-year benchmark gaining 7 basis points to 5.83 percent, the highest since the ECB began its bond buying on Aug. 8. The ECB bought Italian debt today after the auction, according to two people with knowledge of the transactions. A spokeswoman for the ECB declined to comment when contacted by telephone today.

Italian bonds have failed to hold onto the initial gains triggered by the ECB backstop partly due to political turmoil in Italy that has threatened the survival of the Prime Minister Silvio Berlusconi’s government and implementation of the austerity measures.

The premier was forced to defend his administration in a speech in Parliament today after failing to muster a majority on a routine vote this week. Berlusconi called for a confidence vote tomorrow to demonstrate that he still has the support to govern. His term ends in 2013.

The extra yield investors demand to buy Italian 10-year bonds instead of comparable German bunds widened 12 basis points to 367 basis points as of 1:14 p.m. in Rome. That spread reached a euro-era high of 416 basis points on Aug. 5, before the ECB started its bond purchases.

Today’s auction comes before the country pays back 15.5 billion euros of floating-rate bonds due on Nov. 1, Italy’s final bond redemption in 2011. Italy sold 9.5 billion euros in Treasury bills on Oct. 11 in an auction that also saw borrowing costs fall and demand rise.

--Editors: Jeffrey Donovan, Andrew Davis

To contact the reporter on this story: Chiara Vasarri in Rome at

To contact the editor responsible for this story: Angela Cullen at

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