Italy Sells $7.7 Billion of Bonds as Demand Drives Down Costs
October 14, 2010, 6:34 AM EDT
By Andrew Davis
Oct. 14 (Bloomberg) -- Italy sold 5.5 billion euros ($7.7 billion) of bonds, with increased demand for the Mediterranean nation’s longest-term debt helping bring down borrowing costs from previous auctions.
The Treasury sold 1.15 billion euros of debt due 2037 with a yield of 4.53 percent, less than the 4.91 percent at the previous sale on June 11. It sold 846 million euros of bonds due in 2023 to yield 3.98 percent, less than the 4.43 percent at the last sale on July 14.
Italian bonds with maturities over 10 years have gained 1.3 percent in the past month, compared with declines for similar- maturity debt from AAA-rated issuers such as the U.S. and Netherlands, as investors are increasingly comfortable that Italy will avoid the fiscal crises faced by Greece, Ireland and Portugal. Italian debt also yields more than both U.S. and Dutch securities, helping attract investors.
“Good investor interest, coupled with the small amount to be sold, should support demand,” Chiara Cremonesi, fixed-income strategist at UniCredit Research, said in a note to investors before the sale.
The Italian Treasury also sold 3.5 billion euros of bonds due June 2015 today at an average yield of 2.53 percent, compared with 2.69 percent at a Sept. 13 sale. Demand for the 2015 bonds was 1.37 times the amount sold, less than the 1.44 times at the previous sale.
By contrast, the bid-to-cover ratio for the 2023 securities was 2.49 times, more than the 1.5 times in July. For the 2037 bond, investors ordered 1.97 times the amount on offer, compared with 1.9 times in June.
Eight of 11 sovereign-debt sales in the world this week are for maturities of 10 years or more, accounting for about 60 percent of the debt on offer, analysts at Nomura International Plc estimated in an Oct. 8 note to investors. The U.S. sells $13 billion of 30-year bonds today, and the Dutch sold 1.8 billion euros of the securities on Oct. 12.
Italy suffered a surge in borrowing costs following a near- default by Greece this year. The yield premium investors demand to hold 10-year Italian bonds rather than similar-maturity German securities reached a euro-era high of 185 basis points on June 8, and today declined 2 basis points to 144.
Italy’s success in containing its deficit has made its debt’s spread over bunds narrower than those for other so-called euro peripheral nations. Greece’s spread is at 648 basis points, Spain’s is at 170 basis points, Portugal is at 384 basis points and Ireland is at 400 basis points.
While Italy held the European Union’s biggest total debt at the end of last year, valued at 115.8 percent of gross domestic product, the government kept its budget shortfall relatively in check during the economic crisis.
Ireland’s deficit of 14.3 percent in 2009 was almost three times Italy’s at 5.3 percent, while Spain’s at 11.1 percent of GDP is more than twice the Italian gap.