ECB shield helps Italy and Spain meet debt funding goal

Thu Dec 13, 2012 7:25am EST
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By Francesca Landini

MILAN (Reuters) - The European Central Bank's potent bond-buying scheme allowed Italy and Spain to complete their challenging 2012 debt funding requirements through successful auctions on Thursday.

The ECB's pledge in September to buy unlimited quantities of short-term government bonds of vulnerable euro zone members has proven to be a game-changer for Rome and Madrid over the last couple of months.

It again acted as an effective backstop this week when Italian Prime Minister Mario Monti's announcement to resign early unsettled Italian debt market with negative spillovers also for Spanish bonds.

A messy Italian election campaign and bigger Spanish funding needs next year will continue to test the ECB's resolve while the two countries labor to guide their respective economies out of a painful recession.

"Investors are reluctant to (be short of) Italian and Spanish bonds as an activation of the ECB's bond buying scheme in the future cannot be ruled out," said Cyril Regnat, strategist at Natixis.

Spain is widely expected to request access to the euro zone's rescue funds next year. Such expectations, together with appealing returns offered by Rome and Madrid paper and heavy redemptions, supported demand at Thursday's sales.

Rome sold nearly 3.5 billion euros ($4.56 billion) of the new BTP bond maturing December 2015 and paid a yield of 2.50 percent. This was down from 2.64 percent on a similar sale a month ago and the lowest since October 2010.

The treasury also sold 0.729 billion euros of a 15-year bond, issuing a total amount of 4.22 billion euros, just short of its top planned amount of 4.25 billion euros.   Continued...

The Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt December 6, 2012. REUTERS/Lisi Niesner