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Italy Sells 11 Billion Euros of Bills as Crisis Returns

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April 11 (Bloomberg) -- Italy sold 11 billion euros ($14.4 billion) of Treasury bills, meeting its target for the auction as rates rose on one-year debt for the first time since November amid a return of Europe’s sovereign debt crisis.

The Rome-based Treasury auctioned 8 billion euros of 361-day bills at 2.84 percent, up from 1.405 percent at the last sale of similar-maturity debt on March 13. Investors bid for 1.52 times the amount offered, up from 1.38 times last month. Also sold were 3 billion euros of three-month bills at 1.249 percent, compared with 0.492 last month. Italy will auction as much as 5 billion euros of bonds tomorrow.

Italian borrowing costs fell more than 2 percentage points between Prime Minister Mario Monti’s appointment in November and early March as European Central Bank lending and his efforts to spur the economy shored up demand for the nation’s debt. Spain has now revived crisis concerns after the government in Madrid dropped its deficit goal, contributing to four weeks of declines for Italian bonds.

“After three months that were calmer than expected, the euro crisis is back,” Holger Schmieding, chief economist at Berenberg Bank in London, said in an e-mailed note before the auction. While current 10-year yields are still “affordable” for Italy and Spain, “if fear feeds on fear, as has often been the case in previous waves of crisis, things could potentially get worse,” he said.

Surging Yields

The yield on Italy’s 10-year bond was down 17 basis points to 5.51 percent at 11:30 a.m. in Rome, pushing the difference with similar-maturity German debt to 373 basis points. Spanish bonds have fared worse, with 10-year rates climbing 95 basis points to 5.85 percent since Prime Minister Mariano Rajoy told European Union allies on March 2 that the country couldn’t meet its deficit commitment for this year.

The euro stayed higher after Italy’s sale, trading up 0.2 percent at $1.3112 at 11:30 a.m. Rome time.

Today’s auction showed “solid” demand, even as it “was affected by a reigniting of the debt crisis” and “was marked by a conspicuous increase in rates,” the Bank of Italy said in an e-mailed statement from Rome.

ECB Support

The ECB, which started buying Italian and Spanish bonds last August, has lent more than 1 trillion euros in three-year loans to euro-area banks since December. That support prompted purchases of more than 250 billion euros of Spanish and Italian government securities between the third quarter of 2011 and the first quarter of this year, according to calculations by Credit Agricole SA. That’s more than the 216 billion euros of debt sold by the two nations during the same period.

Monti sent Parliament a plan last week to revamp Italy’s labor market, his fourth major legislative effort to make Italy more competitive. The bill was greeted on April 4 by a 9 basis point increase in the 10-year bond yield as Spain’s debt slumped on fresh concern the nation may need a bailout.

Discontent among Italians has been rising as Monti’s efforts to balance the budget have brought higher taxes and record gasoline prices that this month reached almost 2 euros a liter, or about $10.50 a gallon. His push to give companies more freedom to fire workers has proved a hard sell with joblessness at a decade high of 9.3 percent and the economy in its fourth recession since 2001.

While “Europe is going through a difficult time again, luckily, Italy is prepared more than it was few months ago,” Development Minister Corrado Passera told reporters at an event in Rome today. “It’s clear that we need to speed up everything that can support growth.”

To contact the reporter on this story: Chiara Vasarri in Rome at

To contact the editor responsible for this story: Jerrold Colten at

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