The Wall Street Journal reports, "Italy's funding costs were near decade lows at a debt auction Thursday, a clear sign of investor confidence in the country after Matteo Renzi's new coalition government won the backing of the Senate earlier this week, promising radical reform of the Italian economy".
The Italian Treasury sold €9 billion ($12.32 billion) of debt, the maximum amount it had targeted, in 2019- and 2024-dated conventional fixed-rate bonds, or BTPs, and two series of floating rate notes, or CCTeus. Demand was strong for all lines.
The key feature of Thursday's auction was a new 10-year government bond, a September 2024-dated BTP, the yield for which was 3.42%, a level last seen at 10-year Italian debt auctions in 2005, and below grey-market levels at the close of bidding.
The funding cost of 2.14% on the May 2019-dated BTP was a fresh euro-era low, further evidence that funding conditions remain favorable for the country.
BTP prices have strengthened in the past few days as the country's new prime minister, Matteo Renzi, has cleared confidence votes in parliament. Bond prices often fall before an auction because of the prospect of fresh supply. When bond prices rise, yields fall.
"In the past week or so Italian spreads have cozied up to Spanish spreads, as Italy outperformed in the wake of the positive gloss put on political change, together with the removal of a negative outlook by one of the credit-rating firms," said ING's rates strategist Padhraic Garvey. On Feb. 14, Moody's lifted its outlook on Italy to stable from negative, keeping its Baa 2 rating.
