Italy sold 7.5 billion euros ($9.8 billion) of debt, near the maximum for the auction, with the Treasury’s borrowing costs falling as it prepares for its biggest redemption of the year.
The Rome-based Treasury sold 2 billion euros of a benchmark 10-year bond at 6.08 percent, down from 6.98 percent at the last auction on Dec. 29. The Treasury also sold 3.57 billion euros of 5-year bonds at 5.39 percent, down from 6.47 at the last auction of similar securities on Dec. 14, and a total of 1.9 billion euros bonds due 2016 and 2021 bonds.
“All in all, demand was not too bad but some caution seems to have prevailed, given the recent tightening of Italian spreads,” Annalisa Piazza, a fixed income analyst at Newedge Group in London, said in a note published after the auction.
Today’s sale raised funds needed to cover a 25.8 billion- euro bond redemption on Feb. 1, the biggest of the year. The Treasury needs to sell about 450 billion euros of bonds and bills in 2012 to cover redemptions and finance the deficit. Investors bid for 1.42 times the amount of 10-year bonds offered, up from 1.36 last month.
The auction comes as European Union leaders gather in Brussels to strengthen fiscal rules and build a stronger firewall to try to stop the spread of the region’s debt crisis. Their efforts are being overshadowed by complications in closing a deal with Greek creditors to accept writedowns on their bonds, pushing up yields for other highly-indebted countries such as Italy.
Italy’s 10-year bond yield rose 22 basis points to 6.12 percent at 11:45 a.m. in Rome, the biggest intraday gain this year, pushing the difference with German bunds to 429 basis points.
Italian auctions this year have benefited from the European Central Bank’s efforts to fight the spread of the debt crisis by shoring up banks and propping up demand for government bonds. The Frankfurt-based ECB loaned euro-region banks a record 489 billion euros for three years on Dec. 21 to avert a credit crunch and has bought more than 200 billion euros of government bonds since beginning the purchases in May.
Italian Prime Minister Mario Monti pushed through budget cuts and tax increases worth 20 billion euros in December, including higher levies on fuel and a tax on primary homes, in a bid to convince investors Italy can tame the euro-region’s second-biggest debt and curb record borrowing costs.
To counter the austerity, the government this month passed a second plan aimed at boosting competition and growth by opening Italy’s so-called closed professions, including notaries, lawyers and taxi drivers.