Italy sold bonds on Thursday, but not as many as hoped in thin trading. While yields fell, they were still not far from euro-lifetime highs as investors displayed concern over the country’s ability to sustain itself. After the auction, the European Central Bank stepped in to purchase Italy’s bonds on the open market.
Reuters reported that while short-term yields were down, longer-term bonds still commanded a high return at levels seen as unsustainable over the long term. Although Italy only sold enough overall–a total of 7 billion euros ($9 billion)–to make the midpoint of its target range, yield demanded for its benchmark 10-year bonds was at 6.98%, only down a little from the euro-lifetime high of 7.56% last month. However, it was able to sell the top amount it had planned of 10-year bonds at that level.
Three-year BTP bonds did better for the country with regard to expense; their yields dropped more substantially to 5.62% from an end-of-November euro-era record of 7.89%. During that November auction, concerns were so high about Italy’s ability to repay that three-year yields topped longer-term bonds.
David Schnautz, a rate strategist at Commerzbank in London, was quoted saying of the Thursday auction, “Today’s decline in the auction yield by ‘just’ about 60 basis points versus end November in such a high-yield territory underscores that the genuine pressure on Italy is still tremendous, despite bold ECB actions that have given [short-term debt] a big boost.”