Italy sold three-year debt at the lowest rate in almost two years a day after Germany's top constitutional court paved the way for the European Central Bank and the European Union to buy bonds of nations in distress.
The Rome-based Treasury sold 4 billion euros ($5.2 billion) of its benchmark three-year bond to yield 2.75 percent, down from 4.65 percent at the last auction of the same securities on July 13. That was the lowest Italy paid on three-year debt since October 2010, according to Bloomberg data. Investors bid for 1.49 times the amount offered, down from 1.73 times on July 13.
"The short end of the Italian curve will continue to look appealing for those who believe the ECB will embark on some heavy purchases," Annalisa Piazza, a fixed-income analyst at Newedge Group in London, said in a note before the sale.
The bond auction was the first for Italy since the ECB's Sept. 6 pledge to make unlimited purchases of sovereign bonds led to a plunge in borrowing costs of distressed debt in Spain and Italy. The sale also came a day after Germany's Federal Constitutional Court ruled the government can ratify the euro- region's permanent bailout fund, the European Stability Mechanism, a decision that could pave the way for EU and ECB bond buying.
Italy's 10-year bond yield roses 2 basis points 5.058 percent at 11:28 a.m. in Rome, leaving the difference with comparable maturity German bunds at 346 basis points.
Long Maturity
Italy also sold 1 billion euros of five-year debt today at 3.71 percent and 1.5 billion euros of bonds due in 2026 at 5.32 percent, the longest-maturity bonds sold this year. The sale came two days before 10.4 billion euros of bonds mature. Italy auctioned 12 billion euros of Treasury bills yesterday.
Prime Minister Mario Monti, who reiterated this month that Italy doesn't plan to request bond buying for now, called yesterday's ruling "excellent news." He also said conditions in the court's decision won't slow efforts to lower yields.
"I think the sentence only says that to increase the total commitment of Germany the two houses of parliament have to intercede," Monti told reporters in Rome yesterday. "That doesn't seem surprising to me."
Italy's 10-year bond yields fell to the lowest in April yesterday and have declined more than 50 basis points since ECB President Mario Draghi gave details of the Frankfurt-based bank's plans to buy bonds in tandem with the ESM to try to lower borrowing costs.
To contact the reporter on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
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