Italian Debt Costs Halved at Auction

In a sign of easing tensions in the crisis-ridden eurozone, Italy’s borrowing costs plunged by 50% on Wednesday after successfully unloading $11.74 billion of six-month debt at a significantly more reasonable yield than just weeks earlier.

The sale of 9 billion euros of Italian debt needed an average yield of just 3.251% to lure investors, compared with an average yield of 6.504% a month ago – an all-time high since the nation joined the euro a dozen years ago.

The bid-to-cover ratio, a sign of demand, rose to 1.69 times the amount offered, up from 1.5 times earlier.

At the same time, Italy was able to sell 1.733 billion euros of two-year zero-coupon notes at an average yield of 4.853%, down from 7.814% a month earlier.

The upbeat results, coming ahead of a larger, crucial Italian bond auction on Thursday, suggests the market sentiment in the eurozone has improved in recent days thanks in part to a number of moves by the European Central Bank.

The bond sales indicate that “Rome's austerity measures and the ECB's long-term refinancing operation have in part helped to ease strains in the market,” analysts at Brown Brothers Harriman wrote in a note.

The news initially triggered a tightening of the spread between the yield on Italy’s 10-year note and the German bund to 500 basis points. The yields then widened back to 500 basis points.

Eurozone nations have at times struggled to tap the bond markets to finance their debt due to concerns about too much leverage and slow growth. After initially striking Greece, the European sovereign debt crisis spread to Ireland, Portugal and more recently larger nations such as Spain and Italy.

Global markets will be watching closely as Italy attempts to sell 8.5 billion euros of three-year and 10-year bonds on Thursday.