Italy 2-Year Borrowing Costs Fall at Auction
Italy's two-year borrowing costs fell nearly two percentage points at an auction on Tuesday to the lowest since March and Rome sold its targeted amount, setting a positive tone ahead of a more challenging long-term debt sale on Thursday.
Over the past month, yields on Italian and Spanish bonds have eased following a pledge by the European Central Bank to resume its bond-buying programme if necessary, targeting the short end of the curve.
Yields also fell at a Spanish auction on Tuesday.
The Italian Treasury paid 3.06 percent, down from 4.86 percent a month ago and the lowest since March, to sell 3.0 billion euros of two-year zero-coupon CTZ.
Demand for the CTZ was 1.95 times the offer, up from 1.78 at a similar auction one month ago, marking solid appetite for two-year paper thanks to large redemptions and an interesting yield.
"The Treasury will be satisfied with the outcome of today's auction. As was the case with Spain's debt sale this morning, yields fell sharply and demand held up," said Nicholas Spiro of Spiro Sovereign Strategy.
"Yet this is the summer lull and sentiment could easily take another turn for the worse next month if the ECB's bond-buying programme proves to be a disappointment."
The sale marked the start of a busy week for the Italian Treasury as it seeks to sell a maximum of 20.25 billion euros of bonds and bills in three separate auctions.
The real market test will come on Thursday, when the Treasury will try to overcome scarse appetite by foreign investors and high volatility to sell up to 6.5 billion euros of five and 10-year bonds.
The 10-year bond, maturing November 2022, will be on investors' spotlight as it is expected to become the new Italian government bond benchmark.
There are roughly 20 billion euros of Italian bills and bonds maturing at the end of the month and another 29 billion euros for the whole of September.
Spain, the latest hot spot of the euro zone crisis, comfortably sold 3.6 billion euros of short-dated debt on Tuesday, with yields sliding from last month.
Rome comes back to the market on Wednesday with up to 9 billion euros of six-month bills.
At Tuesday's auction, Italy also sold 750 million euros of two inflation-linked BTPs.
"I believe the positive outcome of today's auction will impact on Thursday's long-term bond sale," said Luca Jellinek, an analyst with Credit Agricole CIB.
The market is eagerly awaiting for details of the ECB's bond-buying programme, which Italy and Spain hope can cool their red-hot borrowing costs.
While Italy is insisting it does not at this stage need any form of external help, Spain is expected to have to resort to some form of extra aid. (Reporting by Francesca Landini; Editing by Susan Fenton)