Italy Borrowing Costs Drop as Investors Bet on Stimulus

Italian borrowing costs at an auction of six-month bills dropped from August amid speculation European Central Bank officials will signal today they are open to providing additional stimulus.

The Rome-based Treasury sold 8.5 billion euros ($11.5 billion) of 182-day bills at 0.781 percent, down from 0.886 percent at the previous auction on Aug. 28. Investors bid for 1.45 times the amount offered, compared with 1.47 last month. Italy will redeem 9.4 billion euros of bills Sept. 30.

“The ECB stance is a strong support factor for the front end of periphery curves,” UniCredit fixed-income analyst Chiara Cremonesi wrote in a note before the sale.

Central banks have recently signaled monetary policy will remain loose. The Federal Reserve last week maintained its policy of buying $85 billion of debt a month to put downward pressure on borrowing costs. ECB President Mario Draghi said in testimony to the European Parliament in Brussels Sept. 23 that he’s ready to deploy another long-term refinancing operation to maintain short-term money markets at a level warranted by the central bank’s assessment of inflation.

Italy’s 10-year bond yield rose 8 basis points to 4.3 percent at 11:20 a.m. in Rome, leaving the difference with comparable German bunds at 250 basis points.

Italy returns to the market tomorrow with the sale of as much as 6 billion euros of longer-maturing bonds, including a 10-year security.

“The auction is supported by relative value opportunities, the recovery in the market tone and we expect the domestic bid to remain firm,” Citigroup Inc. fixed-income strategist Nishay Patel wrote in e-mailed report today.

Gross debt issuance this year will be around 470 billion euros, Italy debt agency head Maria Cannata said at a conference in Milan this week. Next year’s issuance should be in line with this year, she said.

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