Italy’s 6-month yields fall sharply

Italy’s six-month borrowing costs fell to 1.59 per cent at an auction on Wednesday, their lowest level since March, with investor appetite for short-term paper boosted by expectations that the European Central Bank will resume its bond-buying scheme. The Treasury had paid 2.45 per cent on the same maturity at a mid-July auction, before a pledge by the ECB to reactivate its bond purchase Programme with a special focus on bringing down the costs of issuing short-dated debt. The scheme is meant to prevent contagion from the European debt crisis as Italy and Spain struggle to service their debt at affordable rates. On Wednesday, Rome sold 9 billion euros bills with bids totalling 1.69 times the offer, sightly up from 1.61 at the end-July auction, a result which matches a successful sale of two-year paper on Tuesday. However, the country faces a tougher market test on Thursday when it offers up to 6.5 billion euros in five and 10-year bonds — the first longer term debt sale since the ECB announcement. “The yield today was below the levels seen on the grey market, so it’s gone very well. This is a segment that has never really had problems with demand and at the moment is benefiting from the prospect of ECB intervention,” said Alessandro Giansanti, strategist at ING in Amsterdam.