* Sells 8.5 bln eur in 6-mth bills, bid/cover up from March
* Yield up 65 bps from March to 1.77 pct, highest since Jan
* Markets eyeing 3.75-6.25 bln eur Italy bond sale on Fri
By Valentina Za
MILAN, April 26 Italy paid the highest yield
since January to sell six-month bills on Thursday as concerns
about feeble economies and large debt burdens in the euro zone
put renewed pressure on the borrowing costs of its weaker
The average rate on Thursday rose to 1.77 percent from 1.12
percent at a bill auction held a month ago, before a more
challenging long-term debt sale on Friday where the euro bloc's
third biggest economy is again likely to have to pay higher
yields than last time, in March.
The Treasury sold the planned 8.5 billion euros in bills,
with bids totalling 1.7 times the amount on offer, up from 1.5
times at a similar-sized sale a month ago.
"The auction went well. The yield, though higher than in
March, is below market levels seen this morning and in recent
sessions," said UniCredit strategist Luca Cazzulani.
A flood of cheap European Central Bank funds helped push
down Italian borrowing costs earlier this year. Six-month
auction yields had been declining since hitting a euro lifetime
record of 6.5 percent in late November and reached an 18-month
low in March.
But budget and banking troubles in Spain have hurt market
confidence in the euro zone's peripheral economies, reversing
the fall in yields, as investors worry that economic recession
will hamper efforts to cut budget deficits.
Next week's elections in France, Greece and, further ahead,
the Netherlands also adds to market uncertainty.
Weaker-than-expected euro zone sentiment data weighed on
European stock and bond markets, pushing Italian and Spanish
bond yields higher after the sale.
Short-term Treasury bills traditionally attract steady
demand from Italian buyers, including retail investors. Some 9
billion euros of bills are maturing on April 30, feeding into
But Rome also needs foreign demand to be able to refinance
its 1.9 trillion euro debt, the world's fourth-largest. Deputy
Economy Minister Vittorio Grilli visits China on Thursday
seeking to promote investments in Italian assets, including
Italy faces challenging funding conditions at sales of
"The outcome of tomorrow's auction will be more interesting
to watch: the size is not small but I expect demand to be there,
thanks to domestic investors," said ING strategist Alessandro
The Treasury will offer up to 6.25 billion euros in bonds on
Friday, including five- and 10-year debt.
Support from domestic banks has helped Italy push auctions
through, even when spiralling concerns last November threatened
to tip the country into a Greek-style debt crisis.
Citi analysts said the Treasury hedged against risks of weak
demand at Friday's bond sale by widening the range between the
bottom and top amount on offer - and setting the former at just
3.75 billion euros, the lowest level this year.