MILAN Dec 12 Hefty debt redemptions will help
Italy to draw good demand for short-term paper at an auction on
Wednesday, when the treasury faces its first market test after
Prime Minister Mario Monti's decision to leave office early.
The unelected caretaker announced on Saturday his intention
to resign as soon as the 2013 budget law is approved after it
lost the support from Silvio Berlusconi's centre-right PDL
party, the largest in the Italian parliament.
Monti's sudden announcement sparked investors' concern that
Italy may stray from a path of economic reforms in the aftermath
of general elections now scheduled to take place in February, a
few weeks ahead of what had been anticipated.
Financial strategists says Italy will battle with renewed
market volatility for months to come. But they expect Rome to
easily find buyers for its one-year BOT bills on Wednesday.
"I expect healthy demand and a limited premium on the BOT
bill curve for the new 12-month," said Elia Lattuga, strategist
at Unicredit in Milan. "Market sentiment appears to have
stabilized and large negative net supply should be very
supportive factor for the auction."
The treasury, which is due to complete its 2012 funding this
week, will tap the market for 6.5 billion euros ($8.45 billion)
of the 12-month bill, but will not sell any three-month bills.
This compares with redemptions worth 10.7 billion euros for
three- and 12-month bills in mid-December. A further 6.5 billion
euros of short-dated paper will come due at the end of the
Concern about renewed political uncertainty in Italy pushed
borrowing costs higher across the yield curve on Monday.
Strategists say Rome could pay a yield of about 1.70 percent
for its bills on Wednesday, below the 1.76 percent it paid last
month but higher than a trough of around 1.25 percent hit before
political tensions in Italy reversed a strong debt market rally.
The rise in Italian borrowing costs for longer-dated paper
could even play in Italy's favour at a three-year bond auction
on Thursday as it may woo risk-prone investors.
"I expect investors will be lured by the recent rise in the
three-year bond yield," said Alessandro Giansanti, strategist at
This week's debt auction will be the last Italian sale to be
completed this year. Rome will come back to markets at the end
of December with two sales to be settled early in 2013.