Italy’s borrowing costs surged at the sale of 6.5 billion euros ($8.2 billion) of Treasury bills after the 100 billion-euro bailout of Spain’s banking system failed to stop contagion from the region’s debt crisis.
The Rome-based Treasury sold the one-year bills at 3.972 percent, 1.63 percentage points more than the 2.34 percent at the previous auction on May 11. Investors bid for 1.73 times the amount offered, down from 1.79 times last month.
The yield on Italy’s 10-year bond fell 4 basis points to 6.13 percent at 11:54 a.m. in Rome, pushing the difference with German bunds to 463 points. A bigger test for the Italian Treasury comes tomorrow when it sells as much as 4.5 billion euros of longer-maturity debt.
“Although a warm-up for tomorrow’s bond auction, today’s sale underscores the externally driven deterioration in Italy’s perceived creditworthiness,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, wrote in an e-mailed note. “Contagion is back with a vengeance and Italy is bearing the brunt of the fallout from Spain’s request for external assistance.”
Spain four days ago became the fourth euro-area country to seek a bailout since the start of the region’s debt crisis more than two years ago, with a request for emergency loans to save its banking system. Instead of calming markets, Spanish and Italian bond slumped, with Spain’s 10-yield reaching a euro-era record 6.834 percent yesterday.
The Spanish bailout has shifted attention to Italy, which has a debt of 1.9 trillion euros that is more as a share of its economy than any other developed nation other than Greece and Japan. The situation in Greece is also adding to concerns, as the country prepares for a second national election in six weeks, a vote that may determine whether it remains in the euro.
Italy is focused on meeting its own commitments, Deputy Finance Minister Vittorio Grilli said in an interview in Rome late yesterday. Grilli also rebuffed suggestions that investors might see Italy as the next country in the firing line, saying that’s only “speculation.” Italy won’t need a bailout even in the future, Prime Minister Mario Monti told German Radio ARD last night. The country’s risk premium over Germany will decline if the summit of European leaders at the end of June adopts a “credible package of growth measures,” the prime minister said in speech in Parliament today.