MILAN: Italian six-month yields hit their lowest level since May at a debt auction on Tuesday, pushed down by loose monetary policies in the United States and Europe that are boosting sentiment towards riskier assets.
The sale showed healthy appetite for Italian debt a day before an auction of longer-dated bonds. Demand totalled 1.8 times the amount on offer, the highest bid-to-cover this year for a sale of this maturity.
Italy paid 0.63 percent to sell 8 billion euros in bills due in April 2014, down from 0.78 percent at a similar auction a month ago.
Bids were supported by 9.2 billion euros of six-month bills maturing this week. Another 23.5 billion euros in bond refunds and coupon payments are expected to help Wednesday's sale of five- and 10-year bonds for up to 6 billion euros.
"Very good demand regardless of political tensions at the weekend," said IG analyst Vincenzo Longo. He pointed to the support offered by the prospect of the US central bank, whose board meets on Tuesday, keeping its monetary stimulus intact.
Rifts in Italy's centre-right party ahead of a Senate vote on whether to expel its leader Silvio Berlusconi from parliament are keeping the country's fragile ruling coalition on edge.
However, supportive monetary conditions and an improved economic outlook in Europe are underpinning sentiment towards riskier assets.
"Given the market environment and the ECB's stance, we regard a further decline in (Italian bill) rates in the coming months as likely," UniCredit analysts said in a note.
A supplementary offering of Italian zero-coupon and inflation-linked debt also saw healthy demand, following a 3-billion euro auction of those bonds on Monday.
Primary dealers bought another 337 million euros of a 2015 zero-coupon bond, with requests for 5.4 times that amount. A 112-million euro supplementary tranche of a 2023 linker drew bids worth 374 million euros.
The Treasury will also tap retail investors next week with an offer of a four-year bond linked to domestic inflation as it works to meet an overall gross funding target of around 470 billion euros this year.
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