MILAN: Italy's two-year debt costs fell on Tuesday to their lowest level since the launch of the euro currency, helped by expectations the EU is set to lift tight controls on Italy's public spending to help the economy.
Rome sold 2.5 billion euros ($3.2 billion) of zero-coupon bonds maturing Dec. 2014 at 1.11 percent, down from 1.17 percent at a similar sale one month ago.
Italy also issued 987 million euros of inflation-linked BTPei bonds maturing Sept. 2018, paying a yield of 1.83 percent.
Investors are cautiously returning to high-yielding debt after they cashed in on Italian and Spanish bonds last week on expectations the US Federal Reserve may scale back its asset buying programme in the next few meetings.
Adding to the positive mood for Italian bonds are expectations that the European Commission will recommend on Wednesday closing the "excessive deficit procedure" it imposed on Rome in 2009.
"Italy's exit from the EU excessive deficit procedure is a positive factor, as it may free up resources for the government to foster growth in the country," a Milan trader said.
Italian officials have said that ending the strict European Union monitoring of Italian public spending will free up resources of up to 12 billion euros.
After the heavy bout of profit taking last week, the fall in auction yields on Tuesday bodes well for this week's sales, said Vincenzo Longo, market strategist at IG in Milan.
The treasury will offer 8 billion euros of six-month bills on Wednesday and up to 5.75 billion euros of five and 10-year bonds on Thursday.
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