Bloomberg News

Italy’s Borrowing Costs Fall at Bond Auction as ECB Prepares Bank Funding

February 28, 2012

Roma and Italia-branded novelty keyrings are displayed for sale at a store in Rome. Photographer: Alessia Pierdomenico/Bloomberg

Roma and Italia-branded novelty keyrings are displayed for sale at a store in Rome. Photographer: Alessia Pierdomenico/Bloomberg

Italy sold 6.25 billion euros ($8.4 billion) in bonds, meeting the maximum target for the auction, as prospects for a second-round of European Central Bank three- year loans to banks shored up demand for new debt.

The Treasury sold 3.75 billion euros of a new 10-year bond to yield 5.5 percent, the lowest for similar maturity debt since September and down from 6.08 percent at the last auction on Jan. 30. Investors bid for 1.4 times the amount offered, down from 1.42 times last month.

The Rome-based Treasury also sold 2.5 billion euros of 2017 bonds to yield 4.19 percent, down from 5.39 percent at the last auction of similar securities on Jan. 30. The sale will help the Treasury cover 37 billion euros in bonds maturing this week.

“The 5.5% yield on the new 10-year issue is symbolically important and could mark a turning point in the crisis. But it’s early days as far as auctions of longer dated maturities are concerned,” Nicholas Spiro, managing director of Spiro Sovereign Strategy London, said in an e-mailed comment.

The yield on Italy’s 10-year bond fell 8 basis points to 5.34 percent at 2:05 p.m. Rome time. That was the lowest since Sept. 8 and the decline narrowed the difference with similar- maturity German debt to 353 basis points.

The auction comes one day before the ECB’s second round of three-year loans to the region’s banks under its long-term refinancing operation. The ECB’s move to shore up funding to lenders has left them more willing to buy European bonds, and Italy’s 10-year yield has declined 141 basis points since the first round on Dec. 21. Lo

ECB Loans

Financial institutions may ask for 470 billion euros of ECB loans, approaching the 489 billion-euro take-up in December, according to the median estimate of 28 analysts surveyed by Bloomberg News.

The unlimited three-year loans by the ECB, coupled with Prime Minister Mario Monti’s efforts to rein in the nation’s debt and spur economic growth, has helped fuel seven weeks of gains by Italian bonds, the longest streak in the euro era.

The Italian auction comes as European leaders prepare to debate whether to bolster the region’s bailout firewall at a summit in Brussels on March 1-2.

Last week they approved 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.

“Italy and the euro zone are by no means out of the woods yet,” so today’ auction “is again a battle won in a long ongoing war,” Marc Ostwald, a strategist at Monument Securities Ltd. in London, said in an e-mail.

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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