Italian borrowing costs rose at an auction of 11 billion euros ($14 billion) of Treasury bills as investors’ optimism over the bond buying plan announced by the European Central Bank began to fade amid Spain’s reluctance to request external aid.
The Treasury in Rome sold 8 billion euros of 364-day bills at 1.941 percent, up from 1.692 percent at the last auction on Sept. 12. Italy also sold 3 billion euros of 91-day bills to yield 0.765 percent, up from 0.7 percent last month.
Investors bid for 1.77 times the amount of one-year bills offered today, up from 1.65 times last month. The bid-to-cover on the three-month bill was 2.79, higher than 2.25 times last month.
Italian Prime Minister Mario Monti, who championed the idea of the EU’s rescue funds buying bonds, has been reluctant to request bond buying without knowing what conditions the EU and ECB demand in return for the support. International Monetary Fund Chief Economist Olivier Blanchard suggested yesterday that bond yields in Spain and Italy may resume rising if the countries don’t request a bailout.
Spanish Prime Minister Mariano Rajoy last week pushed back expectations of a rescue, telling reporters no request was imminent. His deputy, Soraya Saenz de Santamaria, said the government needs to ensure a request for help from the euro’s region permanent bailout fund, the European Stability Mechanism, would be granted before it can call for financial assistance.
ECB President Mario Draghi first signaled on Aug. 2 that the central bank was willing to buy bonds of euro-region countries to bring down borrowing costs. Draghi’s new bond- buying program will work in tandem with debt-purchases by the European Union’s bailout funds and impose conditions on any government making a request.
Italy’s have fallen by more than 120 basis points since Draghi first said the ECB was prepared to support the bonds of financial distressed countries.
The yield on Italy’s 10-year was little changed at 5.113 percent at 11:13 a.m. in Rome, pushing the difference with comparable-maturity German bunds was 362.7 basis points. Italy returns to the market tomorrow with the sale of longer-maturity debt.
With assistance from Lorenzo Totaro in Rome. Editors: Andrew Davis
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