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Italy’s Borrowing Costs Drop as Government Meets Target

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Source: Bloomberg

Italy sold EUR10 billion (US$13 billion) of Treasury bills, meeting its target as rates fell from the previous auction.

The Rome-based Treasury sold EUR7 billion of 364-day bills at 2.34 per cent, down from 2.84 per cent at the last sale of similar-maturity debt on April 11. Investors bid for 1.79 times the amount offered, up from 1.52 times last month. Also sold were EUR3 billion of three-month bills at 0.865 per cent, compared with 1.249 per cent last month.

Prime Minister Mario Monti is implementing EUR20 billion in spending cuts and tax increases to erase the budget gap and tame a EUR1.9-trillion debt. Ten-year borrowing costs fell more than two percentage points between Monti’s appointment in November and early March as demand for the nation’s debt was bolstered by European Central Bank lending and the premier’s efforts to spur the euro region’s third-biggest economy.

Friday’s sale “offers a measure of reassurance, but needs to be backed up by a solid bond auction on Monday,” Nicholas Spiro, London-based managing director of Spiro Sovereign Strategy, said in an e-mail. Italy will auction as much as EUR5.25 billion of bonds on May 14.

Political deadlock in Greece and Spain’s fiscal woes have helped reignite the region’s debt crisis amid waning impact from the ECB’s long-term refinancing operation, or LTRO. The yield on Italy’s 10-year bond was 5.50 per cent at 12:39 pm in Rome, up from 4.80 per cent on March 8, which was the lowest since Monti took office on November 16.

“Market perception-wise, Italy is faring better than Spain, but is still paying more to get its debt out the door,” Spiro said. “This is a post-LTRO trading environment.”