BLBG:Italy Sells 4.75B Euros of Bonds as Costs Fall
Italy sold 4.75 billion euros ($6.1 billion) of bonds, its maximum target, as borrowing costs fell at the second auction this week amid a rally in the government’s short-dated debt.
The Treasury sold 3 billion euros of benchmark securities due in November 2014 to yield 4.83 percent, down from 5.62 percent at the previous sale on Dec. 29. The Rome-based Treasury also priced 779 million euros of its 4.25 percent 2014 bond to yield 4.29 percent and sold 971 million euros of a 4.5 percent bond due in 2018 at a yield of 5.75 percent.
Italy yesterday auctioned 12 billion euros in treasury bills as borrowing costs plunged in the country’s first debt sale of the year. The result may help ease investor concern about Italy’s ability to finance Europe’s second-biggest debt, which pushed the yield on the country’s benchmark 10-year bond above the 7 percent level that led Greece, Ireland and Portugal to seek bailouts.
“While the limited supply helped, the Treasury has met its target, which was not the case in its previous auction of 3-year notes on December 29,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in a note to investors. “The greater the success with medium-to-long maturities, the more credible” will be “the argument that underlying sentiment toward Italy is improving.”
Prices of Italy’s notes and bills have surged amid speculation banks have bought them after receiving three-year loans from the European Central Bank under a program announced last month. Italy, which faces more than 100 billion euros in debt maturities in the first quarter, yesterday sold 8.5 billion euros of one-year bills at 2.735 percent, the lowest since June and less than half the rate paid at the last sale on Dec. 12.
‘Significant’ Challenges
“The issuance challenge for Italy remains significant,” London-based Citigroup Inc. strategists including Jamie Searle said in a note to clients. “Market pressures are more acute in the 10-year sector, which will face supply in two weeks time.”
The yield on Italy’s 10-year bond was at 6.54 percent after the auction at 11:56 a.m. Rome time, down 8 basis points from yesterday. The yield gap with equivalent-maturity German bonds was 475 basis points, down from a two-month high of 531 basis points on Jan. 9. The Treasury, which must sell about 450 billion euros of debt this year, is next scheduled to auction bonds on Jan. 30.
ECB President Mario Draghi said yesterday that his strategy for battling Europe’s debt crisis by easing credit to banks is starting to work. Draghi said he expects “substantial demand” for the ECB’s second batch of three-year loans on Feb. 29.
“The provision of liquidity and the allotment modes for refinancing operations will continue to support the euro-area banks, and thus the financing of the real economy,” Draghi told a news conference in Frankfurt after the central bank held its benchmark rate at a record low of 1 percent.
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
