Italy auctioned 12 billion euros ($15.7 billion) of one-year treasury bills at the lowest rate since August 2010 as European Central Bank (EURR002W) liquidity measures helped boost demand.
The Treasury sold 8.5 billion euros of 364-day bills at a rate of 1.405 percent, down from 2.23 percent at the previous sale on Feb. 13. Demand for the securities was 1.38 times the amount sold, compared with 1.09 times last month. The Rome-based Treasury also sold 3.5 billion euros of three-month bills at a rate of 0.492 percent.
Italian bonds fell yesterday for a second day after a report showed the economy entered a recession after contracting for a second quarter, complicating Prime Minister Mario Monti’s goal of erasing the budget deficit in 2013. The yield on Italy’s 10-year bond yield was down five basis points at 4.86 percent at 12:42 p.m. in Rome, down from a euro-era high of 7.26 percent on Nov. 25.
“These are probably closer to fair value levels than 7 or 8 percent,” Laurent Fransolet, head of European fixed-income strategy at Barclays Capital, said on Bloomberg Television’s “The Pulse” with Maryam Nemazee. Yields probably won’t move in that direction again “except if we have a big, big new external shock that is a little bit less likely to happen,” he said.
Fitch Ratings and Standard & Poor’s lowered Italy’s credit rating in January, saying Monti’s 20 billion-euro austerity plan approved may weigh on household spending and growth. Still, Italian bond yields have fallen since the Frankfurt-based ECB first offered the region’s banks unlimited three-year loans in December, boosting demand for government securities.
Italy, which needs to sell about 450 billion euros of debt this year to cover redemptions and finance its deficit, hasn’t abandoned its strategy of trying to lengthen the maturity of its outstanding debt by selling bonds with maturities of more than 10 years, Deputy Finance Minister Vittorio Grilli said in a March 9 interview with Bloomberg Television in Rome.
The Treasury has been concentrating its debt sales on bonds with maturities of 10 years or less, though it “hasn’t abandoned” auctioning longer-maturity bonds, Maria Cannata, director of Italy’s public-debt agency, said at a March 6 press conference in Rome. Cannata also said it was “amazing” to see the return of foreign investors to Italy’s debt market.
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