The Italian Treasury sold a total of about €4.8 billion, or $6.1 billion, of medium-term debt, including €3 billion of three-year bonds priced to yield 4.83 percent, down sharply from the 5.62 percent it paid at the last auction of such securities in late December. The bid-to-cover ratio, a measure of demand, was 1.2 times, below the 1.36 times at the last sale.
The European Central Bank last month began a massive new funding program to backstop banks, which has helped to restore a semblance of stability to the battered market for euro zone sovereign debt. In Madrid, the Spanish government on Thursday sold €10 billion of bonds — twice the targeted amount — with yields falling about 1 full percentage point from previous auctions.
Yields rise as the price of the underlying bonds falls, so lower yields suggests investors have more confidence in the debtor’s ability to repay its borrowings.
The Spanish auction, as well as a successful Italian auction Thursday of 12-month bills, had lifted hopes for another strong showing by Italy on Friday. But another confidence gauge — the gap, or spread, between Italian and German 10-year bonds — barely budged. Rome’s long-term borrowing costs are still more than three times higher than Berlin’s.
The cost of financing Spanish and Italian debt has been in the spotlight since last year, when contagion from the euro crisis that led Greece, Portugal and Ireland to seek bailouts began to spread.
Though Italy’s public sector deficit is actually much smaller than in many other countries, including Britain and the United States, its public debt — a legacy of past spending and slow growth — is seen as dangerously high.
European banks have been borrowing heavily from the E.C.B. since the central bank announced its longer-term refinancing operations last month, under which it lent €489.2 billion for three years at its 1 percent benchmark interest rate.
E.C.B. data released Friday
showed that banks had deposited a record €489.9 billion — almost the same amount lent under the three-year program — in a reflection of the continuing stresses in the interbank funding market.
A bank that borrows from the E.C.B. at 1 percent and then parks the funds with the central bank gets just 0.25 percent in interest, meaning institutions are losing money on their deposits.
The Bank of Spain said Friday that Spanish banks borrowed €132.4 billion in December, Reuters reported, up from €106.3 billion in November and close to the €140 billion record of July 2010.
Article source: http://www.nytimes.com/2012/01/14/business/global/italy-pulls-off-another-strong-debt-auction.html?partner=rss&emc=rss