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12 April 2012

FT: Italy forced to pay higher yields on bonds

Rome sold €2.88 billion of three-year bonds maturing in March 2015 at yields of 3.89 per cent, which compares with 2.76 per cent when the debt was last issued on March 14.

Italy also sold €395 million of three-year bonds maturing in November 2015 at a yield of 3.92 per cent, €687 million of bonds maturing in February 2020 at 5.04 per cent, and €918 million of bonds maturing in August 2023 at 5.57 per cent. The country had to pay higher yields for all the bonds compared with previous sales.

Deutsche Bank analysts have estimated that Italy might be in better shape in terms of the amount of sovereign debt domestic banks can buy. Deutsche says Italian banks still have more capacity to buy their country’s sovereign debt, whereas Spanish banks have already surpassed the amount they can comfortably buy. This may prove critical, as the early-year rally in peripheral bonds was fuelled by domestic banks buying their own government bonds.

Vittorio Grilli, Italy’s deputy finance minister, dismissed investor worries over the auction, saying that the country did not allocate all bonds in the auction because “it didn’t need funding at an unfavourable yield”. He also said that the yields at the auction “reflected current market sentiment” and insisted the sale was in line with expectations.

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© Financial Times

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