Italy Borrowing Cost Falls in Ten-Year Bond Auction

Investors’ increasing belief in coordinated action by the European Central Bank and European leaders to fight the sovereign debt crisis in the eurozone helped Italy reduce its borrowing costs at a 10-year sovereign debt auction on Monday.

The Italian Finance Ministry sold 2.485 billion euros worth of ten-year papers with yields falling to 5.96 percent, down from the 6.19 percent at an auction held on June 28. Demand exceeded supply by 1.29 times compared with 1.28 times at the previous auction.

The yields on five-year bonds also declined, falling to 5.29 percent from 5.84 percent at a previous auction on June 28, raising $2.244 billion euros. Demand exceeded supply by 1.34 times compared with 1.54 times at the previous auction.

The exception to the favorable course of the sale was the placement of Italy’s three-year papers, with yields rising to 4.49 percent from 3.92 percent at the last auction, but well below the 7 percent market critical for the Italian government to repay its debts.

In total, the Italian Finance Ministry netted 5.749 billion euros from the sale of sovereign debt instruments, compared to its expectations of 3 to 5 billion euros in bond sale receipts.

European Central Bank chief Mario Draghi is meeting U.S. Treasury Secretary Timothy Geithner in Frankfurt today after the French, German and Italian leaders backed him with statements last Thursday that they will do everything is needed to protect the eurozone.

European stocks are currently trading at four-month highs in reaction to positive business news from Europe.


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