MILAN Nov 29 Italy is expected to clear its
last funding hurdle of 2012 on Thursday after a year when its
heavy sovereign debt burden threatened repeatedly to push it
into seeking a bailout.
The treasury is seeking to place up to 6 billion euros of
five- and 10-year bonds at an auction that could bring Rome
within reach of its 460-465 billion euros ($594-$600
billion)2012 borrowing target.
The borrowing needs of the euro zone's third biggest economy
are expected to be 10 percent lower in 2013. But uncertainly
over the outcome of a general election in March will keep the
treasury on guard in the first quarter of next year.
"The final part of the year looks smooth for funding," said
Alessandro Giansanti, an analyst at ING. "If we think where we
stood a year ago, one can see how much the yields have come
At an auction last November, shortly after technocrat Mario
Monti took over from scandal-plagued premier Silvio Berlusconi,
the treasury had to pay a record 7.56 percent to draw bids on
its 10-year bonds.
A pledge by the European Central Bank to buy bonds with
maturities of up to three years has sparked a rally in
short-term bonds issued by southern euro zone states in the
latter half of this year. But sales of 10-year paper remain the
real test of how investors measure the risk of an Italian
"The fall of 10-year yields to the lowest level since May
2011 (4.60 percent) would be the confirmation the ECB has
changed the perception of Italian risk in a stable way," said
Elia Lattuga, fixed income strategist at Unicredit.
Lattuga expects the cost of funding to drop on Thursday by
40 basis points for the five-year bond, to around 3.40 percent,
the lowest level since November 2010, and by 30 basis points for
the 10-year paper.
Despite the ECB's bond-buying plan, Italy could struggle to
woo foreign buyers spooked by the euro zone's relentless
problems in bailing out Greece and trying to contain Spain's
economic and banking troubles.
In less volatile markets, Italy could focus on lengthening
the average life of its debt towards 7 years after a big
refinancing hump forced it to offer shorter maturities in the
first part of the year. It also lured domestic buyers with a new
bond tailored for retail investors which drew a whopping 27
billion euros in three tranches.
"I expects Italy plans to return to issue at 15- and 30-year
maturities next year," said Chiara Manenti, fixed income
strategist at Intesa SanPaolo.
Manenti forecasts a 420 billion euros borrowing target for
Italy next year while redemptions will be more evenly spread.
But Italy will still have to contend with political
uncertainty and a deep recession which adds to questions about
whether it can sustain its 2 trillion euros of debt.