Dec. 28 (Bloomberg) --Italy sold 9 billion euros ($11.8
billion) of six-month Treasury bills, meeting its target, and
borrowing costs plunged after the European Central Bank provided
euro-region lenders with unlimited three-year loans last week.
The Rome-based Treasury sold the 179-day bills at a rate of
3.251 percent, down from a 14-year-high of 6.504 percent at the
last auction of similar-maturity securities on Nov. 25.
Investors bid for 1.7 times the amount offered, up from 1.5
times last month.
Demand “was quite good, a sign that market tensions have
considerably eased from a month ago and that ECB liquidity may
be working to support demand,” Luca Cazzulani, a senior fixed-
income strategist at UniCredit Global Research in Milan, said in
a note published today.
The auction was Italy’s first since the ECB offered 489
billion euros in loans to European banks last week in a bid to
avoid a credit crunch. Italian lenders borrowed 116 billion
euros as part of the tender on Dec. 21, according to a person
with direct knowledge of the loans. A bigger test of the ECB
lending on demand for European bonds comes tomorrow when Italy
sells as much as 8.5 billion euros of longer-maturity debt.
Bonds Gain
Italian 10-year bonds rose for the first time in five days
after the auction on bets the ECB loans are boosting demand for
the nation’s debt. The yield on the country’s 10-year bond fell
22 basis point to 6.77 percent at 12:56 p.m. in Rome, narrowing
the difference with Germany to 484 basis points from 508 basis
points yesterday.
The Treasury also auctioned 1.7 billion euros today of
zero-coupon notes due 2013, short of the maximum target, at
4.853 percent. The treasury sold the debt at 4.853 percent, down
from 7.814 percent on Nov. 25.
“This may be seen by some as an indication that ‘maturity
matters’ in Italian paper, with the credit risk associated with
longer maturities warranting compensation,” said Alessandro Mercuri, an interest-rate strategist at Lloyds Bank Corporate
Markets in London. Today’s “overall positive results, means
that tomorrow “the risks of a bad auction may be limited.”
Budget Plan
Italian Prime Minister Mario Monti secured final approval
in Parliament last week for a 30 billion-euro budget plan aimed
at raising revenue and boosting economic growth as he tries to
persuade investors Italy can tame the country’s 1.9 trillion-
euro debt and avoid a bailout. The measures, including a tax on
luxury goods, a levy on primary residences and higher gasoline
prices, may deepen the country’s recession and until today had
done little to bring down borrowing costs.
Monti’s budget plan risks deepening the country’s economic
slump and complicating efforts to cut debt. Italy’s economy
contracted 0.2 percent in the third quarter and likely shrank
more in the final three months, marking the fourth recession
since 2001. Italy will remain in a recession until the second
half of next year, employers’ lobby Confindustria said in a Dec.
15 report. The $2.3 trillion economy will contract 1.6 percent
in 2012 after growing 0.5 percent this year, the lobby said.
The euro region’s third-largest economy has to repay about
53 billion euros in debt in the first quarter from the region’s
total maturing debt of 157 billion euros, according to UBS AG.
It owes a further 3.2 billion euros in interest payments based
on the average five-year yield of the past three months.
Italy expects to raise almost 450 billion euros from bond
and bill sales next year to cover 202 billion euros of maturing
bonds and pay for a 23.6 billion-euro deficit, Maria Cannata,
director of public debt, said in a Dec. 24 interview with
newspaper Il Sole 24 Ore. The remainder of the issuances will be
Treasury bills.
To contact the reporter on this story:
Chiara Vasarri in Rome at
cvasarri@bloomberg.net.
To contact the editors responsible for this story:
Angela Cullen at acullen8@bloomberg.net.
