Italy sells euro 1.5 bn of bills, yields surge

Italy sold euro 11.5 billion ($15.6 billion) of Treasury bills as demand waned and borrowing costs rose amid Europe’s sovereign-debt crisis.

The Rome-based Treasury sold euro 7.5 billion of one-year bills at an average yield of 4.153 per cent compared with 2.959 per cent the last time securities of similar maturity were sold on August 10. Demand was 1.53 times the amount on offer, compared with 1.94 times at the previous sale.

The Treasury also sold euro 4 billion of 3-month bills. The yield was 1.907 per cent, up from the 1.034 per cent the last time such securities were sold on March 10. The bid-to-cover ratio was 1.86, compared with 2.42 at the previous sale.

Italy’s borrowing costs have dropped from a euro-era high since the European Central Bank began buying the nation’s debt on August 8. The yield on the benchmark 10-year bond has fallen more than 100 basis points since reaching a record 6.4 per cent August 4 on concern Italy would become the next victim of the region’s debt crisis.

Today’s auction comes as the Chamber of Deputies prepares to give final approval this week to a euro 54 billion austerity package. The plan, passed by the Senate last week, was first announced on August 5 in exchange for the ECB bond purchases.

The extra yield investors demand to hold Italian 10-year bonds over benchmark German bunds rose nine

basis points to 372 basis points as of 10.29 am in Rome, compared with a euro-era record of 416 basis points on August 5.

Italy still faces euro 75 billion of maturing bills this year and needs to sell about euro 80 billion of bonds to pay for redemptions and the budget deficit.

The biggest test comes this month when about euro 46 billion of bonds mature.