Italy Sells Bills at Lowest Rate Since March After ECB Pledge

Italy sold one-year bills at the lowest rate since March in the first auction since the European Central Bank’s pledge to buy debt of distressed euro-region countries led to a plunge in borrowing costs.

The Italian Treasury sold 9 billion euros ($11.6 billion) of one-year debt at a rate of 1.692 percent, down from 2.767 percent at the last auction of similar-maturity debt on Aug. 13. Italy also sold 3 billion euros of three-month bills at 0.7 percent, down from 0.865 percent the last time the securities were sold on May 11.

Italy’s 10-year bond yields fell to the lowest since April 2 last week after ECB President Mario Draghi said the central bank was willing to make unlimited purchases of sovereign bonds of countries such as Italy and Spain that have suffered a surge in borrowing costs even after austerity measures. Prime Minister Mario Monti has said that Italy doesn’t plan to request aid for now.

Debt of so-called peripheral countries remains attractive “after Draghi announced details of the ECB’s bond purchase program and reaffirmed the ECB’s commitment to do what is needed to defend the euro,” Luca Cazzulani, a senior fixed-income strategist at UniCredit SpA (UCG) in Milan, said in a note to investors before the sale. “We see pressure at the short end as a buy opportunity.”

Investors bid for 1.65 times the amount of one-year bills offered, down from 1.69 times on Aug. 13. The bid-to-cover ratio on the three-month bills was 2.25 times, compared with 2.49 in May. The country redeems 8.25 billion euros in zero-coupon bonds on Sept. 14. The resulting net financing of 3.75 billion euros is the highest since March 15, UniCredit’s Cazzulani said.

Monti helped champion the bond-buying approach at a summit in June, when euro-region leaders agreed to give the area’s bailout funds more flexibility to purchase debt to combat the fallout from the debt crisis. That agreement helped pave the way for Draghi’s plan to buy bonds with maturities of as much as three years in conjunction with euro-zone efforts.

Draghi said that the ECB will only buy debt if countries agree to unspecified “conditionality.” Monti and Spanish Prime Minister Mariano Rajoy have pushed for the economic and fiscal measures they have already adopted to be accepted by euro-region partners in lieu of new policy demands.

To contact the reporter on this story: Andrew Davis in Rome at abdavis@bloomberg.net

To contact the editor responsible for this story: Tim Quinson at tquinson@bloomberg.net

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