Italy Sells Bills at Lowest Since 2010 as Crisis Concerns Ease

Italian Prime Minister Mario Monti
Italian Prime Minister Mario Monti said in Tokyo today, the euro area’s woes are “almost over” after a slow initial response by policy makers. Photographer: Kamoshida Koichi/Bloomberg

Italy auctioned 8.5 billion euros ($11.3 billion) of Treasury bills at the lowest rate in more than a year as optimism that the euro-region’s debt crisis is easing shored up demand for new debt.

At the auction today, the Rome-based Treasury sold 8.5 billion euros of six month bills at 1.119 percent, the lowest since September 2010. Italy will sell as much as 8.25 billion euros of five- and 10-year bonds tomorrow.

The euro area’s woes are “almost over” after a slow initial response by policy makers, Italian Prime Minister Mario Monti said in Tokyo today. Monti said he doesn’t expect “flames of crisis” to return as euro-zone nations implement closer fiscal cooperation and seek to boost the region’s bailout funds.

The Italian auction came as European leaders move closer to an agreement to boost the limit on rescue lending as they seek to build a firewall against contagion after Greece restructured its debt. Leaders are confident the extra capacity plus more than 1 trillion euros pumped into the financial system by the European Central Bank will down borrowing costs of the country’s hardest hit by the crisis.

“When Monti makes these remarks he’s clearly speaking as a politician and not as an economist,” said Nicola Marinelli, who oversees $153 million at Glendevon King Asset Management in London. “He’s trying to spread his optimism to capitalize on the success of his reforms, but he’s aware that Italy can return to same situation seen last summer in less than two weeks if the government loses its political majority or these reforms are watered down in parliament.”

Market Gains

Monti’s optimism mirrors that of other European leaders. German Chancellor Angela Merkel said yesterday that the crisis is ebbing and her country’s borrowing costs will probably rise as its status as a haven wanes.

Stocks have risen on optimism the global recovery will be sustained, with the U.S. jobless rate dropping, the ECB stepping up liquidity support and euro-region leaders sealing a second Greek bailout package. The Stoxx Europe 600 is up almost 9 percent this year, while the MSCI Asia Pacific Index gained 12 percent and is headed for the biggest quarterly gain since the three months through September 2009.

Borrowing Costs

The yield on Italy’s 10-year bond was down 5 basis points to 5.069 percent at 12:47 p.m. in Rome, pushing the difference with similar-maturity German debt to 319 basis points.

That yield has fallen by more than 2 percentage points since Monti took over in November as his efforts to consolidate public finances and spur economic growth, coupled with the ECB lending convinced investors to return to Italy.

Monti is visiting Japan and China this week, seeking to boost trade with major Asian economies and shore up confidence in Italy’s ability to tame the nation’s 1.9 trillion-euro debt, Europe’s second biggest. The premier is implementing a 20 billion-euro package of spending cuts and tax increases to eliminate the budget deficit by 2013 and boost an economy that has trailed the euro-region average for more than a decade.

Monti predicted a continued rally in Italian bonds, saying a solution to Greece’s challenges is almost accomplished, Spain is employing discipline and Italian actions have helped stop deterioration in Europe’s woes.

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