ROME: Italy paid sharply lower rates on Wednesday to raise 9.0 billion euros ($11.8 billion) in a six-month bond sale as tensions over the eurozone's third economy eased after its tough austerity plan.
The sale was being seen as a bellwether for market sentiment on the eurozone at the end of a year in which borrowing costs have spiked to record highs over fears that the euro itself could disintegrate because of high debt levels.
Wednesday's rate was 3.251 percent -- half the 6.504 percent paid for a similar operation in November and also lower than the 3.535 percent in October.
The Treasury also raised 1.733 billion euros with zero coupon bonds due in 2013 at a rate of 4.853 percent, compared to 7.814 percent last month.
Investors hailed the sale, with stock markets rising around Europe including a 1.24-percent jump in Milan after the auction and the yield on Italian 10-year bonds on the secondary market easing to 6.732 percent from 6.943 percent on Tuesday.
"This is very good news. Not only was demand up to par but rates were sharply lower," said Cyril Regnat, a bond strategist at French bank Natixis.
Italy has spooked international markets this year with its slow growth and a sharp rise on its borrowing costs raising fears of an imminent blow-up of its giant debt -- equivalent to 120 percent of gross domestic product (GDP).
Silvio Berlusconi's replacement by Mario Monti as prime minister in November has helped calm nerves although there is still concern about the impact on the economy of a draconian plan of tax increases and pensions adopted this month.
The rate on 10-year bonds has hit well above 7.0 percent this year -- far higher than a level seen as sustainable -- and the European Central Bank has been forced to intervene with massive bond purchases on the secondary market.
Analysts suggested the ECB may also have had a role in Wednesday's dramatic drop in Italian bond rates as last week it provided banks with a record 489.2 billion euros in three-year loans.
While the injection was made in order to avoid a credit crunch, the low 1.0 percent interest rate makes it easy for lenders to make money off higher-yielding bonds, and analysts have been anticipating that the funds may help bring down sovereign borrowing costs.
The sale was "a sign that market tensions have considerably eased from a month ago and that European Central Bank liquidity may be working to support demand," said Luca Cazzulani, a strategist at Italian banking giant UniCredit.
With Wednesday's auction and a scheduled sale on Thursday of between 5.0 billion and 8.0 billion euros of bonds maturing in three, seven and 10 years, Italy will have raised around 430 billion euros this year on the debt markets.
This week's auctions have "the task of closing with a positive note a horrible year for Italian bonds," business daily Il Sole 24 Ore said.
In 2012 Italy will have to raise 450 billion euros, with more than half of that amount in the first four months of the year, the Corriere della Sera daily reported. The target is seen as challenging but possible by analysts.
"Italian debt accounts for a significant portion of total eurozone funding in the first quarter, and the ECB will have to step up its bond purchases," said Neil MacKinnon, an economist with VTB Capital bank.
Ugo Bertone, a market analyst on Italian financial website firstonline.info, said: "The first quarter of 2012 will be decisive for the survival of the euro after a bitter battle that will be fought on the Italian bond front."
The government has said it is planning a raft of measures to help stimulate the economy starting next year -- including a liberalisation of notoriously protectionist professional associations like taxi drivers and pharmacists.
Monti is also planning an overhaul of labour market legislation to make it easier to fire people -- a move that opponents say will sharply increase the unemployment rate but supporters say will actually help encourage hiring.
Another major plan is a large-scale privatisation programme, which according to Corriere della Sera could cut debt by around 100 to 150 billion euros.
The government is forecasting the economy will contract 0.4 percent in 2012.
Comments
Comments are closed for this article.