Italian yields ease after bond auction

ROME: Italian government bond yields eased on Wednesday after the country sold 3bn of five-year debt in the first longer-term auction since the European Union took steps towards greater fiscal integration last week, Reuters reported.The sale drew decent demand, with yields lower than those seen in the secondary market ahead of the auction, but borrowing costs were still at euro-era highs around 6.5 per cent, doing little to dispel concerns about the countrys longer-term financing sustainability."Given the large concession given ahead of todays tap, we expected demand to be a touch stronger," said Annalisa Piazza, market economist at Newedge Strategy."However, uncertainties on the future of the debt crisis remain high and the market seems to be mainly driven by flight-to-quality this morning."Saddled with a debt equivalent to 120 per cent of gross domestic product, Italys funding costs have spiraled towards unsustainable levels since it took centre stage in the debt crisis in early July.Secondary market yields edged lower on the week however, reversing the rise of the last two sessions seen after markets were left unconvinced by the effectiveness of the steps taken by EU leaders last week to stem the debt crisis."Obviously five-year funding rates of 6.5 per cent are unsustainable and the cost of funding will become a crucial factor in the first quarter of next year," said WestLB rate strategist, Michael Leister."For now, however, the market is happy with the supply being digested rather than raising questions as to the price of doing so."The sale was likely supported by domestic investors with few other buyers of Italian bonds seen recently apart from the European Central Bank."Investors are pulling back into their domestic markets all over the euro zone," said Rabobank rate strategist Richard McGuire."Your government is ultimately going to be the one, that if everything else fails, supports you. You want to be holding their debt rather than be on the hook for someone elses."Benchmark 10-year Italian yields were flat at 7.13 per cent, with yields on the September 2016 bond auctioned almost 13 basis points lower on the day at 6.73 per cent.
Click here to read full news..