Italy Sells One-Year Bills at Lowest Since January 2010

Italy sold 8.5 billion euros ($11.1 billion) of one-year Treasury bills at the lowest in three years as bond investors bet that caretaker Prime Minister Mario Monti’s economic policies will continue even if he doesn’t become premier for a second time.

The Treasury in Rome today sold the 365-day bills at 0.864 percent, down from 1.456 percent at the previous auction of similar-maturity debt Dec. 12 and the lowest since Jan. 12, 2010. Investors bid for 1.79 times the amount of bills offered, down from 1.94 times last month.

Even if Monti’s coalition of centrist parties has little chance of winning the Feb. 24-25 vote, markets seem convinced his policies will remain in place after the elections. Opinion polls show the center-left bloc led by the Democratic Party’s Pier Luigi Bersani probably will win a comfortable majority in the Chamber of Deputies, thought it may fall short of a majority in the Senate and need Monti’s support to govern.

A post-electoral agreement between Bersani and Monti would “create a more stable parliamentary majority, which would eventually increase the likelihood of reforms and fiscal rectitude,” UniCredit economists including Chiara Corsa said in an e-mailed note today. “Among the plausible scenarios, this would be the most positive one for the country and financial markets”.


Italy’s 10-year bond yield spread between Italian bonds and German bunds narrowed almost 20 basis points to 260 basis points today.

“There’s an expectation on the part of many investors that there will be “Monti-ism” with or without Monti,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said by e-mail after the sale. “The result of today’s auction, with the yield declining further, is a reflection of the continued positive tone toward Italian debt since the European Central Bank unveiled its bond-buying program last summer”.

The ECB’s pledge to buy bonds of countries in financial distress, coupled with optimism the European financial crisis is easing, is spurring demand for the debt of so-called peripheral nations. Spain’s government bonds surged today, with two-year yields falling to the lowest level since November 2010, after the nation sold more securities than planned at its first debt auction this year.

Italy returns to the market tomorrow with the sale of as much as 5 billion euros of longer maturity debt.

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