Italy Sells 7 Billion Euros of Bonds as Yields Fall

By Alessandra Migliaccio - Dec 29, 2011 8:25 PM GMT+0700

Italy auctioned 7.02 billion euros ($9 billion) of bonds, short of the target, as borrowing costs declined, underscoring investor concerns over its ability to finance the world’s fourth-biggest debt load.

The euro fell to its lowest against the dollar since September 2010 and 10-year Italian notes slid after the sale, keeping their yield above 7 percent. Short-term securities rose.

“This is not a bad result at all, particularly given that the yield on the three-year note fell markedly,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in a telephone interview from London. Still, “market pressure is unlikely to abate” amid “underlying concerns about creditworthiness.”

With an economy sinking into its fourth recession since 2001, Prime Minister Mario Monti’s government expects to raise almost 450 billion euros from bond and bill sales next year. It 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 Swiss lender UBS AG.

At a year-end press conference in Rome today, Monti said Italy’s borrowing costs -- more than triple Germany’s for 10 years -- were unjustified. He said he is preparing measures aimed at cushioning the economic slump, including deregulating labor markets and lowering fuel prices.

Auction Results

In today’s auction, the Treasury sold 2.5 billion euros of securities due in 2014, less than the 3 billion euro maximum for the sale, to yield 5.62 percent. That was down from 7.89 percent at the previous sale on Nov. 29. The Treasury priced 2.5 billion euros of its 5 percent 2022 bond to yield 6.98 percent, compared with 7.56 percent on Nov. 29. Italy also sold about 2 billion euros of bonds due 2021 and a floating-rate security due 2018.

The sale, which aimed to raise 8.5 billion euros, came one day after Italy auctioned 9 billion euros in treasury bills for 3.251 percent. That was about half the rate from the previous auction on Nov. 25 after the European Central Bank last week offered euro-area banks unlimited funds for three years.

Italian 10-year bonds (.IT10) stayed lower after the auction. The 10-year yield was 7.05 percent at 1:10 p.m. London time. Three- year yields pared declines, dropping 7 basis points to 5.81 percent. They earlier fell to 5.68 percent.

Yesterday’s auction was Italy’s first since the ECB loaned 489 billion euros to European banks in a bid to keep credit flowing to the 17-nation economy while lawmakers tackle the sovereign debt crisis. Italian lenders borrowed 116 billion euros as part of the tender on Dec. 21, according to a person with direct knowledge of the loans.

To contact the reporter on this story: Alessandra Migliaccio in Rome at amigliaccio@bloomberg.net

To contact the editor responsible for this story: Jerrold Colten at jcolten@bloomberg.net