Italy Sells 9 Billion Euros of Bills as Borrowing Costs Plunge

December 28, 2011, 6:00 AM EST By Chiara Vasarri

Dec. 28 (Bloomberg) --Italy sold 9 billion euros ($11.8 billion) of six-month Treasury bills and borrowing costs plunged from the previous auction as the government passed measures aimed at trimming the euro region’s second-biggest debt.

The Rome-based Treasury sold the 179-day bills at a rate of 3.251 percent down from a 14-year-high of 6.504 percent at the last auction of similar maturity securities on Nov. 25. Demand was 1.7 times the amount on offer, compared with 1.47 times last month. The Italian Treasury also sold 1.7 billion euros of zero- coupon notes due 2013 at 4.853 percent

A “successful start to the week’s Italian supply schedule,” said Alessandro Mercuri, an interest-rate strategist at Lloyds Bank Corporate Markets in London. “Italy managed to get away the whole 9 billion allocation amount. Domestics are likely to have facilitated demand, given the excess liquidity currently floating around.”

Prime Minister Mario Monti secured final approval in Parliament last week for a sweeping budget plan aimed at raising revenue and boosting anemic economic growth as he tries to persuade investors Italy can tame the country’s 1.9 trillion- euro debt and avoid a bailout. The measures, including a tax on luxury goods, a levy on primary residences and higher gasoline prices, may deepen the country’s recession and until today had donw little to bring down borrowing costs.

Bonds Gain

Italian bonds pared earlier losses and advanced with the yield on the country’s 10-year debt falling 23 basis point to 6.76 percent, narrowing the difference with Germany to 483 basis points from 508 basis points yesterday. Italy had to pay the most in 14 years to sell five-year bonds on Dec. 14.

Monti’s budget plan risks deepening the country’s economic slump and complicating efforts to cut debt. Italy’s economy contracted 0.2 percent in the third quarter and likely shrank even more in the final three months, marking the fourth recession since 2001. The country will remain in a recession until the second half of next year, employers’ lobby Confindustria said in a Dec. 15 report. The $2.3 trillion economy will contract 1.6 percent in 2012 after growing 0.5 percent this year, the lobby said.

The euro region’s third-largest economy has to repay about 53 billion euros in debt in the first quarter from the region’s total maturing debt of 157 billion euros, according to UBS AG. It owes a further 3.2 billion euros in interest payments based on the average five-year yield of the past three months.

Italy expects to raise almost 450 billion euros from bond and bill sales next year to cover 202 billion euros of maturing bonds and pay for a 23.6 billion-euro deficit, Maria Cannata, director of public debt, said in a Dec. 24 interview with newspaper Il Sole 24 Ore. The remainder of the issuances will be Treasury bills.

--Editors: Andrew Davis, Jeffrey Donovan

To contact the reporter on this story: Chiara Vasarri in Rome at cvasarri@bloomberg.net.

To contact the editors responsible for this story: Angela Cullen at acullen8@bloomberg.net.

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