August 11, 2022

Italy Borrowing Costs Hit 3-Year High in Bond Sale

LONDON — Italy managed to sell five-year bonds in an auction on Thursday but yields were at the highest level in three years, showing that some investors remained nervous about the sovereign debt crisis spreading across Europe.

The sale came just ahead of an informal meeting in Rome by officials from the European Central Bank, the European Commission and private lenders to discuss a second rescue plan for Greece.

Worries among some investors that the slow pace of European leaders in coming up with a solution for Greece’s ballooning debt has pushed up borrowing costs in recent days for other European economies, especially Italy and Spain.

Earlier doubts about whether the Italian prime minister, Silvio Berlusconi, and the finance minister, Giulio Tremonti, would agree on new austerity measures added to the uncertainty.

On Thursday, the Italian Treasury said it priced €1.25 billion, or $1.8 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, even though at a higher cost, some analysts said the focus is 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.”

The Institute of International Finance, which represents finacial services companies, said that Charles Dallara, its managing director, had arrived in Rome 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 customary condition of anonymity, said the meeting would focus on the involvement of private investors, such as banks and insurance companies, in a new Greek package and will give officials the chance to exchange opinions. No statement was expected after the meeting, the official said.

An I.I.F. spokesman, Frank Vogl, said the talks represented a chance for the I.I.F. to update European governments on the status of recent, intense negotiations among Greece’s main creditors about the scale and method of the private sector’s involvement in the next bailout. The talks would be focused solely on Greece and not any other euro zone country, he added.

European leaders on Wednesday put off a proposed summit meeting until next week to give themselves more time to settle disagreements over how to get private investors to share the pain in any future Greek bailout. Chancellor Angela Merkel of Germany argued that a package of necessary measures was not yet ready.

Greece’s credit rating was cut three levels to CCC by Fitch Ratings late Wednesday. The ratings agency cited uncertainties about a Greek rescue and the role of private lenders in such a rescue.

Italy is expected to push through a four-year austerity plan and win support for the measures from opposition parties this week.

The Italian deficit as a share of gross domestic product was less than half of that of Greece last year. But as investors become increasingly nervous about the possibility of containing Greece’s debt problems, borrowing costs for Italy have increased.

Matthew Saltmarsh contributed reporting. Gaia Pianigiani contributed reporting from Rome.

Article source: http://feeds.nytimes.com/click.phdo?i=59c75d147356f9ca3851f69dc351b4dc

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