Bloomberg News

Italy Auctions 12 Billion Euros of Bills as Rates Decline

February 13, 2012

(Updates with comments by analyst in third and last paragraphs, Bank of Italy in fourth, markets in fifth. For more on Europe’s debt crisis, see {EXT4 <GO>}.)

Feb. 13 (Bloomberg) -- Italy sold 12 billion euros ($15.9 billion) of Treasury bills today, meeting its target for the auction, and borrowing costs fell to the lowest since June from the previous sale.

The Rome-based Treasury sold 8.5 billion euros of 365-day bills at 2.230 percent, the lowest since June 10 and down from 2.735 percent at the last auction of similar-maturity securities on Jan. 12. Investors bid for 1.09 times the amount offered, down from 1.47 times last month. The Treasury also sold 3.5 billion euros of 127-day bills at a rate of 1.546 percent, down from 1.644 percent last time.

While “in pricing terms, Italy has turned a corner,” the country “is starting to become a victim of its own success,” Nicholas Spiro, managing of Spiro Sovereign Strategy in London, said in an e-mail. “The dramatic fall in yields over the past several weeks has driven down borrowing costs to levels where demand is ebbing. Today’s auction is an illustration of this.”

The Bank of Italy said a technical problem delayed its reception of purchase requests and may have affected the bid-to- cover ratio on the 1-year bill sale, “which wasn’t particularly brilliant,” according to an e-mailed statement from the Rome- based central bank.

ECB Assistance

Italy, which needs to sell about 450 billion euros of debt this year, has benefited from the European Central Bank’s efforts to fight the sovereign debt crisis by shoring up banks and propping up demand for government bonds. The Frankfurt-based institute loaned euro-region banks a record 489 billion euros for three years on Dec. 21 to avert a credit crunch and has been purchasing Italian bonds since August.

The auction comes after Greek lawmakers approved spending cuts demanded by European finance chiefs, giving the indebted nation the chance of a financial lifeline and reducing investor demand for the safest assets. Italian 10-year bonds advanced, with the yield at 5.53 percent at 11:54 a.m. Rome time, which is seven basis points lower than on Feb. 10 and compares with a euro-era high of 7.55 percent on Nov. 29.

Mario Monti, the unelected premier who took over after Silvio Berlusconi’s resignation in November, pushed through 20 billion euros in spending cuts and tax increases in December while reducing red tape that he blames for Italy’s stagnant economy. Italian gross domestic product expanded at an annual average of 0.4 percent in the decade through 2010, compared with 1.2 percent in the euro area.

Weakening Economy

Italy’s government projects GDP to fall 0.5 percent this year while the International Monetary Fund forecasts a contraction of 2.2 percent. Bank of Italy Director General Fabrizio Saccomanni told reporters in Rome last week that he expects the economy to shrink as much as 1.5 percent in 2012.

“As yields find a floor after several weeks of sharp declines, more attention will be paid to Italy’s economic fundamentals which are deteriorating markedly,” Spiro said. “Right now, the market is unsure about the fair value of Italian sovereign risk.”

--Editors: Jeffrey Donovan, Jerrold Colten

To contact the reporter on this story: Chiara Vasarri in Rome at cvasarri@bloomberg.net.

To contact the editor responsible for this story: Jerrold Colten at jcolten@bloomberg.net


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