Bloomberg News

Italy Sells 12.25 Billion Euros of Bills as Rates Plunge

February 27, 2012

Italy auctioned 12.25 billion euros ($16.45 billion) of Treasury bills and sold six-month debt at the lowest rate in more than a year as efforts to contain the region’s debt crisis fueled confidence among investors.

The Rome-based Treasury sold 8.75 billion euros of 184-day bills at 1.202 percent, the lowest since September 2010, and down from 1.969 percent at the last auction of similar-maturity securities on Jan. 27. Investors bid for 1.36 times the amount offered, compared with 1.35 times last month. The Treasury also sold 3.5 billion euros of 295-day bills at 1.29 percent.

Prime Minister Mario Monti is implementing a 20 billion- euro package of spending cuts and tax increases to eliminate the budget deficit and tame the nation’s 1.9 trillion-euro debt. His efforts to consolidate public finances and spur economic growth, coupled with the European Central Bank’s flood of three-year loans to banks, has led to seven weeks of gains by Italian bonds, the longest streak in the euro era.

The yield on Italy’s 10-year bond fell 2 basis points today to 5.462 percent, bringing down the difference with similar- maturity German debt to 358 basis points.

The ECB will hold its second round of three-year loans on Feb. 29 under its long-term refinancing operation. Financial institutions may ask for 470 billion euros of loans, compared with 489 billion euros requested from the ECB in December, according to a Bloomberg News survey.

Next Test

“Expectations of a high takeup at the forthcoming three- year LTRO coupled with an improving market sentiment on Italy should have supported demand at today’s auction,” Chiara Cremonesi, a fixed-income strategist at UniCredit SpA in London, wrote in an e-mailed report. The next test comes tomorrow, when the Treasury will seek to sell as much as 6.25 billion euros in bonds. “We expect another good result at tomorrow’s auction,” Cremonesi said.

European leaders meeting in Brussels this week will shift their focus to bolstering the euro region’s debt-crisis firewall after approving last week a second bailout for Greece worth 130 billion euros that included an accord for the biggest sovereign debt restructuring in history. Creditors agreed to forgive 53.5 percent of their principal and exchange their remaining holdings for new Greek bonds and notes from the European Financial Stability Facility, the region’s temporary bailout fund.

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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