Reuters: Market News: UPDATE 1-Italy 6-mth yields fall to 1.1 pct, soothe nerves

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UPDATE 1-Italy 6-mth yields fall to 1.1 pct, soothe nerves Mar 28th 2012, 10:08 Wed Mar 28, 2012 6:08am EDT By Valentina Za MILAN, March 28 (Reuters) - Italy met good demand for six-month Treasury bills on Wednesday, paying the lowest yield since September 2010 and sending a reassuring signal to investors after a disappointing market reaction to a bond sale the previous day. The Treasury faces a bigger challenge on Thursday when it offers up to 8.25 billion euros of longer-term debt, including five- and 10-year bonds. A month after the second - and likely last - offering of three-year funds by the European Central Bank, investors will be looking for signs that the boost to demand provided by the ECB is beginning to wane after profit-taking pushed Italian yields higher in recent weeks. On Wednesday Italy sold 8.5 billion euros of bills at an average 1.12 percent yield, down from 1.20 percent a month ago. The sale was covered 1.51 times, up from a bid-to-cover of 1.36 at the end of February. "The auction drew good demand and is generally positive, marking an improvement compared to the sale on Tuesday," said ING strategist Alessandro Giansanti. "The fall in yields was not remarkable but levels are already low and there is less room for further reductions." Analysts said the bill auction was helped by the fact that for the first time this year net supply at the auction was slightly negative - as bills maturing at the end of March total more than the amount sold. On Tuesday Spain paid 0.84 percent to sell 1 billion euros of six-month debt, up slightly from 0.76 percent at a previous sale. Burdened with a much smaller public debt compared to Italy, Spain initially benefitted more from the ECB's liquidity injections. However, growing investors' fears about Madrid's public finances in recent weeks have pushed Spain's benchmark 10-years yields above those of Italy's. Italy's 10-year BTP bond yielded 5.07 percent on Wednesday, 7 basis points lower on the day, against Spain's 5.31 percent. Italy sale of zero-coupon and inflation-linked bonds on Tuesday saw decent demand and a sharp fall in two-year yields from a month earlier, but supply pressure on the linker segment drove Italian yields higher in the session. After stepping up bills issuance early in 2012 to overcome a refinancing hump, Italy is looking to reduce sales of ultra-short maturities and curb a fall in the average life of its debt by using proceeds from new retail-targeted linker bonds. The inaugural issue of the new bonds last week brought 7.3 billion euros into the Treasury's coffers. Link this Share this Digg this Email Reprints

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