ECB pledge pushes Italy yields down at auction

Thu Sep 13, 2012 8:48am EDT
 
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By Silvia Aloisi

MILAN (Reuters) - Italian three-year borrowing costs fell to their lowest in almost two years at an auction on Thursday, adding to signs the euro zone's debt crisis has been tempered by bold action by the European Central Bank.

The Treasury also paid lower yields to sell its first 15 year bond in more than a year, indicating longer-term borrowing was also benefitting from the ECB's plan for buying bonds issued by the governments struggling most with high debt.

"The very fact that the Treasury issued its longest-dated conventional bond since Italy was sucked into the euro zone crisis last summer says much about the dramatic improvement in sentiment towards the periphery," said Nicholas Spiro of Spiro Sovereign Strategy.

Debt markets have eased much of the pressure on the two bigger euro zone economies now in the line of fire in the crisis since ECB President Mario Draghi made a pledge in late July to do all that was needed to defend the euro.

But there are still concerns, ranging from whether Italy and Spain can generate the growth needed to bring down debt, to the shape of an Italian government after 2013 elections and whether they will stick to any conditions attached to ECB bond-buying.

Spiro said it was premature to think the crisis that has rocked the euro zone for almost three years has been stemmed for good, and that Italy remained vulnerable.

"The depth of the recession, the scant prospect for meaningful growth, the size of the country's refinancing requirements and, crucially, the increasingly uncertain political outlook all pose significant risks going forward."

Underscoring those concerns, Italy's business lobby Confindustria said the euro zone's third biggest economy would shrink 2.4 percent this year and 0.6 percent in 2013 - making it hard to eat into a debt pile now at 123 percent of GDP.   Continued...

 
People leave the stock exchange in downtown Milan September 13, 2012. Italian three-year borrowing costs fell to their lowest in almost two years at an auction on Thursday, adding to signs the euro zone's debt crisis has been tempered by bold action by the European Central Bank. REUTERS/Paolo Bona