Italy passes acid test

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Italy sold all it wanted of a new 10-year bond at auction on Thursday, 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.

Italy paid 4.73 percent on the five-year bond, down from 5.29 percent at the end-July auction, again the lowest yield for a comparable instrument since March.

According to analysts' calculations, the Treasury has satisfied 72 percent of its total refunding target for 2012. It faces redemptions of 29 billion euros in September, and another 57 billion euros falls due in December.

“Domestic investors are more than happy to buy short-term debt ... but overseas investors still require significant premium to be attracted to the longer end,” said Nick Stamenkovic, a bond strategist with RIA Capital Markets. - Reuters

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