By Francesca Landini
MILAN Dec 12 Italy lowered its borrowing costs
at a one-year debt auction on Wednesday, clearing its first
market hurdle since Prime Minister Mario Monti announced his
intention to leave office early.
One-year debt yields fell to their lowest in nine months as
hefty redemptions boosted liquidity on the market.
The European Central Bank's September pledge that it stands
ready to buy bonds of vulnerable euro zone countries continued
to shield Italian debt, providing an effective counterweight to
Italian political uncertainty, analysts said.
The treasury sold 6.5 billion euros one-year bills as
planned and paid a yield of 1.46 percent, down from 1.76 percent
one month ago.
A sell-off on Monday following Monti's announcement pushed
yields well above a trough of around 1.25 percent reached at the
end of November, making Italian bills more appealing.
"Investors saw Monday's sell-off as an opportunity to buy
Italy at a cheaper price," said Chiara Corsa, strategist at
Unicredit in London.
"The steep fall in the yield at auction is a good signal if
you consider what happened during the weekend."
Monti announced on Saturday his intention to quit as soon as
the 2013 budget law is approved after losing support from Silvio
Berlusconi's centre-right PDL party, the largest in the Italian
The announced early exit of the technocrat premier 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.
However strategists see the ECB bond-buying scheme as an
effective counterweight to Italian political risk, for now, and
expect Rome will meet its borrowing target for this year with a
bond auction on Thursday.
"With the ECB's fiscal backstop in place, investors are much
less concerned about Italian debt," said Nicholas Spiro at
Managing Director at Spiro Sovereign Strategy.
Italy will sell new three-year debt alongside an existing
2026 bond, planning to raise up to 4.25 billion euros.