Reasonable but not well
December 29, 2011
Yields on long-term Italian bonds fell from recent record highs at an auction on Thursday after dropping on short-term bonds the day before.
Italy, Europe's third largest economy, paid 5.62 percent to sell new three-year bonds, a much lower yield compared to a euro lifetime high of 7.89 percent paid a month ago. And the 10-year yield fell to 6.98 percent from a euro lifetime record of 7.56 percent at an auction at the end of November.
The auction raised about 7 billion euros ($9 billion), meeting the Italian treasury's target of between 5 and 8.5 billion euros of bonds.
Market turbulence far from over
The Thursday auction followed on the heels of a well-bid short-term debt auction the day before. The Bank of Italy said the average yield on its 9 billion-euro six-month bond offering was 3.25 percent. That is half the 6.5 percent rate it had to pay at the equivalent auction last month.
Another auction of two-year bonds on the same day saw the yield fall to 4.85 percent from 7.81 percent last month. Altogether, Italy raised 10.7 billion euros at the auctions.
An injection of longer-term liquidity from the European Central Bank and a new Italian budget package this month have eased pressure on shorter-term debt, but longer-dated bonds still pose a challenge for Italy ahead of large redemptions early next year.
While happy with the success of the Italian bond auctions this week, Prime Minister Mario Monti warned that market turbulence is not over. "They went rather well and this is encouraging but we certainly do not think that the phase of financial turbulence is finished," Monti said at an end-of-year news conference.
Analysts warn about possible dangers posed by the 193 billion euros of Italian debt due to be refinanced next year, with about 91.7 billion euros due between February and April. They point to other countries, confronted with a series of failed debt auctions, have had to ask for bailouts as their debt jumped to unsustainable levels.
Author: John Blau (Reuters, AFP, AP)
Editor: Ben Knight