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Italian Borrowing Costs Drop at Bill Auction on Stimulus Bets

Oct. 29 (Bloomberg) -- Italian borrowing costs dropped at an auction of six-month bills amid expectations policy makers will refrain from tapering stimulus.

The Rome-based Treasury sold 8 billion euros ($11 billion) of 181-day bills at 0.629 percent, down from 0.781 percent at the previous auction on Sept. 26. Investors bid for 1.82 times the amount offered, compared with 1.45 last month. Italy will redeem 9.2 billion euros of bills Oct. 31.

Bond investors are being encouraged by speculation the Federal Reserve won’t reduce its stimulus program until March as policy makers await signs the U.S. economy and labor market are improving.

The European Central Bank’s policy makers have pledged in July to keep official interest rates at or below current levels for an extended period, without specifying a time frame.

“Given the market environment and the ECB’s stance, we regard a further decline in BOT rates in the coming months as likely,” Elia Lattuga, a fixed-income strategist at UniCredit SpA, wrote in a note to investors yesterday.

Italy’s 10-year bond yield dropped 7 basis points to 4.13 percent at 11:08 a.m. in Rome, leaving the difference with comparable German bunds at 239.1 basis points.

Italy returns to the market tomorrow with the sale of as much as 6 billion euros of five and 10-year bonds.

To contact the reporter on this story: Chiara Vasarri in Rome at cvasarri@bloomberg.net

To contact the editor responsible for this story: Jerrold Colten at jcolten@bloomberg.net

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