Italy Borrowing Costs Rise to Highest Since March at Sale

Italian borrowing costs rose at auction on signs that central banks will refrain from adding more stimulus to bolster global growth.

Italy sold 3.4 billion euros ($4.5 billion) of 2.25 percent 2016 bonds at 2.38 percent, the highest since a sale of comparable maturity bonds on March 13 and up from 1.92 percent at the last auction May 13. Investors bid 1.34 times the amount of the three-year bond offered, the same as last month.

Italian yields climbed to the highest in more than two months on June 11 after European Central Bank President Mario Draghi told German television the previous day that ECB debt buying will only be used to target bond prices that are out of line with fundamentals. Today’s auction comes after Italy sold one-year bills yesterday at the highest rate since March 12.

The Rome-based Treasury today also sold longer-term debt, placing 1.5 billion euros of 4.75 percent 2028 bonds to yield 4.67 percent and 2.9 billion euros of two floating-rate 2018 bonds. Altogether, Italy sold 7.83 billion euros of debt, near the 8 billion-euro maximum target for the auction.

Italy’s 10-year bond yield dropped 2 basis points to 4.37 percent after the sale at 12:05 p.m. in Rome, pushing the difference with comparable German bunds to 281 basis points.

Further Volatility

“Although we expect further volatility in cross-country spreads going forward, we rule out another massive widening movement,” Annalisa Piazza, a fixed-income analyst at Newedge Group in London, wrote in a note to clients after the sale. Fundamentals “wouldn’t justify such a move, now that Italy has a relatively stable government that is driving the country in the direction of structural reforms and a smooth transition” out of the recession in the past few quarters.

With the country’s economy probably mired in its eighth quarter of recession and unemployment at a 36-year high of 12 percent in April, Italian Prime Minister Enrico Letta has called for European Union policy to focus more on growth and job creation and less on austerity.

The economy and labor ministers of Italy, France, Germany and Spain will gather in Rome tomorrow to discuss a common strategy before the June 27-28 EU summit that will focus on youth unemployment. Letta’s administration has also pledged to cut labor taxes and review a controversial property tax.

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