Italy sold 8 billion euros ($10.6 billion) of bonds and floating-rate securities as borrowing costs fell amid rising optimism that the region’s debt crisis is easing.
The Treasury sold 3.25 billion euros of a 10-year bond to yield 5.24 percent, the lowest since August 2011 and down from 5.5 percent at the previous auction on Feb. 28. Investors bid 1.65 times the amount offered, up from 1.40 times last month. The Rome-based Treasury also sold 2.5 billion euros of five-year bonds and 2.26 billion of a new floating 2017 bond to yield 4.18 percent and 4.6 percent respectively.
“Going forward, demand is the key factor to watch,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said by e-mail. “So far, it has been sovereign-carry- trading domestic banks that have been mainly responsible for shoring up Italy’s bond market. Foreign bond-buying needs to increase significantly”.
Italy’s borrowing costs have fallen since Prime Minister Mario Monti‘s appointment in November as his efforts to spur economic growth and reduce the euro region’s second-biggest debt, coupled with the European Central Bank unlimited three- year lending, shore up demand for bonds.
Italian 10-year bonds stayed lower after the auction, with the yield on the 10-year bond rising seven basis points to 5.18 percent at 2 p.m. Rome time.
Monti’s government passed 20 billion euros of Italian expenditure cuts and tax increases in December to balance the budget in 2013, followed by measures to spur competition and ease bureaucracy. This month his government overhauled labor laws to make it easier to fire workers while extending the country’s unemployment safety net.
The Italian auction comes as euro-area finance ministers are due to meet in Copenhagen tomorrow to decide how to build a bigger firewall to protect against debt-crisis contagion. The ministers are considering combining the capacity of the temporary 440 billion-euro European Financial Stability Facility and its permanent successor, the 500 billion-euro European Stability Mechanism.
Monti said yesterday he doesn’t expect “flames of crisis” to return as euro-zone nations implement closer fiscal cooperation and seek to boost the region’s bailout funds.
The yield on Italy’s 10-year bond has fallen by more than 2 percentage points since Monti became premier. He has predicted a continuing rally, saying a solution to Greece’s challenges is almost accomplished, Spain is employing discipline and Italian actions have helped stop deterioration in confidence in Europe.
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