Italy Sells Bills as Rates Drop to Lowest Since March 2010

Italy sold 8.5 billion euros ($11.4 billion) of six-month Treasury bills as rates dropped to the lowest in almost three years as the European Central Bank’s pledge to buy bonds continues to provide an effective backstop even amid rising political concerns.

The Treasury in Rome today sold the 181-day bills at 0.731 percent, the lowest since March 26, 2010 and down from 0.949 percent at the previous auction of similar-maturity debt Dec. 27. At today’s auction investors bid for 1.65 times the amount of the debt offered, up from 1.57 times last month. The sale was probably helped by 9.78 billion euros in redemptions this week.

Investors continue to shrug off the political risk of a hung parliament after Italy’s Feb. 24-25 national vote. Support for frontrunner Pier Luigi Bersani’s Democratic party declined 1.1 percent to 30.7 percent after a derivatives scandal at Banca Monte dei Paschi di Siena SpA emerged last week, according to an EMG poll conducted Jan. 24-25 for La7 television. Support for outgoing premier Mario Monti’s coalition fell 0.7 percent to 14.5 percent, while former Prime Minister Silvio Berlusconi’s People of Liberty party rose 1 percent to 20 percent.

Weak Majority

Should the trend continue, it may prevent the center-left bloc from winning an outright majority in both houses of Parliament even if it strikes an alliance with outgoing premier Mario Monti’s centrists.

While “markets, as in any other country, would like to see a solid majority”, even if this doesn’t happen, it wouldn’t represent a major problem as the next government will likely continue on the reform path of the Monti administration, Mario Spreafico, chief investment officer at Schroders Private Banking in Milan, said by phone after the auction.

Finance Minister Vittorio Grilli is due to testify at 3 p.m. today on Monte Paschi’s 3.9 billion-euro rescue as lawmakers question whether the lender deserves aid after hiding losses.

Italy’s 10-year bond yield was little changed at 4.2 percent after the sale at 11:56 a.m. in Rome. Italy returns to the market tomorrow with the sale of longer-maturity bonds.

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