Italy bond auction fails to match Spanish success

Fri Jan 13, 2012 7:43am EST
 
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By Valentina Za

MILAN (Reuters) - Italy's three-year debt costs fell below 5 percent but its first bond sale of the year failed to match the success of a Spanish auction the previous day, reflecting the heavy refinancing load Rome faces over the next three months.

Italy raised the maximum planned amount of 4.75 billion euros at the auction but did not live up to market expectations raised by a Spanish tender on Thursday where Madrid raised 10 billion euros, twice the planned amount, at lower rates.

Both Italy and Spain are benefiting from half a trillion euros of cheap three-year funds the European Central Bank injected into the banking system in an unprecedented move last month. Investors, however, remain more cautious towards Rome in the light of its much larger refinancing needs.

"The auction metrics look robust on aggregate, although not as spectacular as yesterday's Spanish supply," said Michael Leister, a strategist at DZ Bank in Frankfurt.

Italian bonds rallied after domestic banks awash with ECB money snapped up Spain's bonds on Thursday. The mixed results of the Italian sale tempered market enthusiasm and Italy's 10-year yields rose back above 6.60 percent in the secondary market, after falling below 6.50 earlier in the session, to their lowest level in more than a month.

"This will serve to dampen some of the markets' enthusiasm in the wake of yesterday's Spanish auction ... It doesn't defeat the notion that the ECB extraordinary liquidity provisioning will support peripheral debt but it perhaps tempers expectations as to what degree these operations will support," said Richard McGuire, a strategist at Rabobank in London.

LOWEST SINCE SEPTEMBER

Italy sold its November 2014 three-year benchmark bond at an average rate of 4.83 percent on Friday, down sharply from a yield of 5.62 yield at an auction just two weeks ago.   Continued...