Milan - Italian three-year borrowing costs jumped to 3.89% at a bond auction on Thursday, a rise of more than one percentage point
compared with a month ago and the latest sign markets are unconvinced that
Europe is on top of its debt problems.
Budget troubles in Spain and concerns about slowing global
growth have turned the spotlight back on Italy’s €1.9 trillion debt and a
bond rally driven by a liquidity injection by the European Central Bank (ECB) has
given way to profit-taking.
The 3.89%t Italy paid to sell its three-year March
2015 bond compared with 2.76% in mid-March. A day earlier, Italy’s
one-year borrowing costs doubled in an auction.
“The funding environment is getting tougher for the
periphery. Overall we believe the spreads are biased towards further widening
although we still prefer Italian debt over Spanish,” said Michael Leister, a
strategist at DZ Bank.
Thursday’s increase brings three-year auction yields to
their highest level since mid-January.
In a more reassuring sign, however, the Treasury raised €4.88bn at the sale - just shy of its maximum planned amount of €5bn.
Italy’s 10-year yield gap against Germany tightened slightly
after the auction to 379 basis points, from 384 basis points ahead of
publication of the results.
“It sold nearly the top amount, this is undoubtedly
positive,” said ING strategist Alessandro Giansanti.
Italian officials have blamed external factors - an oblique
reference to Spain - for the rise in yields and dismissed suggestions the slow
progress of structural reform, including new labour rules, have put off
Thursday’s auction was seen benefiting from reinvestment
flows from €15bn of Italian BTP, or fixed-rate, bonds maturing
Italy also sold three off-the-run bonds due in 2015, 2020
and 2023. It was the first time since last October Italy issued a bond with a
maturity longer than 10 years. Traders said these lines had been specifically
requested by primary dealers.
The Treasury sold the maximum planned amount of €2bn for the three lines, and the sale was more than twice covered.
The Treasury has repeatedly said it wants a lasting
improvement in market conditions before it starts issuing longer term debt again.
Such bonds have benefited less than shorter-maturities from the ECB’s liquidity
Prior to Thursday’s sale, Italian three-year borrowing costs
had been declining after hitting a euro lifetime record of 7.9% in
Rome has struggled, however, to regain lasting market
confidence under a new government led by economist Mario Monti, with key help
coming from the ECB’s longer-term loans, which have funded Italian banks’
purchases of government bonds.
With investors fearing the debt crisis could worsen again,
Italian banks’ exposure to sovereign risks has returned as a source of concern.
The yield premium Italian 10-year bonds pay over German
Bunds rose above 400 basis points on Tuesday, for the first time since early
February. That compared with a level of around 570 basis points at the height
of the eurozone crisis last November.
With a healthier banking system and a less indebted private
sector, Italy is seen on a sounder footing than Spain but lags behind Madrid in
its yearly funding plans.
It has so far completed only 37% of an estimated bond
issuance plan of €215bn for 2012, while Spain has reached almost
half its 2012 goal.