August 16, 2022

Italy Bond Sale Succeeds, Despite Market Concerns

LONDON — Italy managed to sell five-year bonds in an auction on Thursday, but yields were at their highest level in three years — a sign that some investors remain nervous about the risk of the sovereign debt crisis spreading from Europe’s vulnerable periphery to its core economies.

The sale came just before an informal meeting in Rome by officials from the European Central Bank, the European Commission and private lenders to discuss a second Greek rescue plan that leaders hope to announce next week.

Investor worries about the deadlock among European leaders over a solution for the Greek debt crisis have pushed up borrowing costs in recent days for the much bigger European economies of Italy and Spain.

Earlier doubts about whether the Italian prime minister, Silvio Berlusconi, and his finance minister, Giulio Tremonti, would agree on new austerity measures compounded the uncertainty. The Italian Senate on Thursday approved a €70 billion, or $99 billion, austerity plan; the lower house of Parliament is scheduled to vote on Friday.

The Italian Treasury said it had priced €1.25 billion of five-year bonds, the maximum it had earmarked for the sale, with a gross yield of 4.93 percent, up from 3.9 percent at a previous auction in June. It also sold a combined €3.7 billion of bonds with maturities of up to 15 years.

With Italy able to place the bonds, albeit at a higher cost, some analysts said the focus was shifting back to whether European policy makers would be able to agree on a Greek bailout.

“The Italians got away with what they intended to do and it did initially help to stabilize the markets,” said Eric Wand, a fixed-income strategist at Lloyds Bank Corporate Markets in London. “But the situation now is reverting back to European politics — and as politicians don’t seem to be in a desperate rush to get something out, the markets is starting to really get nervous.”

That message was echoed by the International Monetary Fund, whose mission chief in Ireland, Ajai Chopra, said European leaders needed to act decisively to handle the crisis.

“What is critical now is for Europe to dispel the uncertainty of what is perceived by the markets as an insufficient response,” he said at a news conference in Dublin.

Ireland, whose credit rating was recently lowered to junk status, received a positive report from the I.M.F., the European Commission and the European Central Bank.

“What we need and what is lacking so far,” Mr. Chopra said, “is a European solution to a European problem.”

Mr. Chopra called for a speedy end to the debate that has held up the construction of the new package: the extent to which private investors will have to make sacrifices as part of the new bailout of Greece.

With the E.C.B resisting any solution that involves a selective default, but the German government pressing for private investors to share the pain, policy-makers have been unable to construct a second bailout for Greece.

“We need to come to closure on this debate,” Mr. Chopra said, adding that it would be important to avoid the impression that any solution to the Greek case that involved private investors would be the template for other rescue packages.

The Institute of International Finance, which represents financial services companies, said Charles Dallara, its managing director, arrived in Rome on Thursday for discussions with Vittorio Grilli, an Italian Treasury official who is also the chairman of a high-level European committee on economic policy.

An Italian Treasury official, speaking on the customary condition of anonymity, said that the meeting would focus on the involvement of private investors, like banks and insurance companies, in a new Greek package and would give officials the chance to exchange opinions. No statement was expected after the meeting, the official said.

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