Italy passes hard test in bond action

MILAN - Reuters

An employee fixes sales stickers on the window of a shop in central Rome. AFP photo

Italy sold all it wanted of a new 10-year bond at auction yesterday, with yields well under 6 percent, helped by expectations that the European Central Bank will act soon to ease borrowing costs for weaker euro zone members. Investors bought 4 billion euros of bonds maturing November 2022, making bids for 1.42 times the amount on offer, up from 1.29 at a similar auction a month ago.

Borrowing costs on the BTP bond fell to 5.82 percent, down from 5.96 percent at last month’s auction, making it the lowest yield on 10-year paper since March.

The bond sale was the first for Italian longer-term bonds since the ECB pledged on Aug. 2 to take steps to ease borrowing costs in the currency bloc. The central bank is due to unveil details of the measures it is planning at a meeting on Sept. 6.

“I would say that the outcome is positive. They sold the entire 10-year and five-year offer. It’s a positive thing that the 10-year yield was below the grey market, where it had reached 5.93 percent in pre-auction,” said Alessandro Giansanti, strategist at ING in Amsterdam.

Giansanti said expectations of ECB intervention had opened a “positive window” of opportunity for the Treasury. An effective system of bond-buying by the ECB could give Italy longer-term relief as it struggles to reduce a mammoth 2 trillion euros of debt at a time when its economy is shrinking.

Rome also sold 2.5 billion euros of a five-year bond due in June 2017 and 793 million euros of a floating rate CCTeu note maturing June 2017, with a total amount placed of 7.293 billion euros, compared with a planned range of 5.25-7.5 billion euro.