Italy sold €6.25 billion in bonds today, 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 of a new 10-year bond to yield 5.5 per cent, the lowest since September and down from 6.08 per cent at the last auction of similar-maturity debt on January 30th. 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 of 2017 bonds to yield 4.19 per cent, down from 5.39 per cent at the last auction of similar securities on January 30th. The sale will help the Treasury cover €37 billion in bonds maturing this week.
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 December 21st.
"Given the strong performance of Italy recently, the scope for further outperformance may be limited from here," Huw Worthington, a fixed-income strategist at Barclays Capital in London, wrote in a note to investors before the sale. "As such, we would not rule out some further underperformance into the auctions."
Financial institutions may ask for €470 billion of ECB loans, approaching the €489 billion take-up in December, according to analysts.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 yield on Italy's 10-year bond fell 5 basis points to 5.37 per cent at 11:19 a.m. Rome time, narrowing the difference with similar-maturity German debt to 354 basis points.
The Italian auction also comes as European leaders prepare to debate whether to bolster the region's bailout firewall at a summit in Brussels later this week.
Last week they approved a second bailout for Greece worth €130 billion that included an accord for the biggest sovereign debt restructuring in history.
Creditors agreed to forgive 53.5 per cent 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.
Bloomberg
