Italy Sells EU4.5 Billion of Bonds as Yields Decline

Italy sold 3.82 billion euros ($5.1 billion) of zero-coupon and inflation-linked bonds as borrowing costs fell to a four-month low.

The Treasury sold 2.82 billion euros of the zero-coupon 2014 debt to yield 2.352 percent, the lowest since November and down from 3.013 percent at the previous auction on Feb. 24. Investors bid for 1.86 times the amount offered, down from 1.93 times last month. The Rome-based Treasury also sold 1 billion euros of inflation-linked bonds due in 2019 and 2021 to yield 3.06 percent and 3.45 percent respectively.

Italy’s borrowing costs have fallen as Prime Minister Mario Monti’s efforts to spur economic growth and reduce the euro region’s second-biggest debt, coupled with the European Central Bank unlimited three-year lending, shore up demand for bonds.

“Italy has gained the most in the post-LTRO landscape” and “the ‘Monti factor’ has become a key pillar of support for Italian bonds,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said by e-mail. “The key question is what happens if sentiment towards Spain deteriorates markedly. Italy is unlikely to be spared.”

Italian 10-year bonds fell after the auction, pushing the yield up four basis points to 5.07 percent as of 12.57 p.m. local time.

The drop in yields at the Italian bond sale contrasts with rising borrowing costs at an auction in Spain. The Treasury had to pay 0.836 percent to sell six-month bills, more than the 0.764 percent of a month ago, while the cost of its three-month debt declined at a sale of 2.6 billion euros of both securities.

Monti’s government passed 20 billion euros of Italian budget cuts and tax hikes in December to balance the budget in 2013, followed by measures to spur competition and reduce bureaucracy. This month his government overhauled labor laws to make it easier to fire workers while extending the country’s unemployment safety net.

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