Italy paid more to borrow for a year than it did last month at a debt auction on Wednesday as a EUR 100 billion rescue for Spain's banking system failed to calm concerns that the country may be the next in line to seek a bailout.
Investors were also cautious ahead of the crucial election in Greece on June 17, the outcome of which could decide whether or not the country would leave the euro area.
Germany too saw a modest increase in borrowing costs on Wednesday as markets remained edgy over the prospects of the Spanish and Italian economies as well as the likelihood of a 'Grexit'.
The Italian Treasury raised the targeted EUR 6.5 billion from the sale of its 12-month bills.
The average yield on the 1-year paper rose to 3.972 percent from 2.34 percent in the previous sale on May 11.
The bid-to-cover ratio, which indicates demand, meanwhile fell to 1.73 from 1.79.
The benchmark 10-year yield for Italy eased today after surging to near 6.30 percent yesterday.
Italy is set to face a tougher challenge on Thursday, when it plans to sell as much as EUR 4.5 billion of its longer term debt, including 3-year bonds.
Spanish borrowing costs jumped to euro-era highs on Tuesday as optimism that followed a 100 billion euros EU bailout of its banks continued to fade. Investor sentiment was dampened further by the downgrade of 18 Spanish banks by Fitch Ratings.
The benchmark 10-year bond yield for Spain hit 6.81 percent yesterday as the euphoria that followed a bigger-than-expected bailout over the weekend was entirely nullified by Monday as investors' attention was shifted to the upcoming Greek election.
According to Bundesbank, Germany today sold EUR 4.04 billion of its 10-year bunds. Investors bid for EUR 5.8 billion, exceeding the maximum target of EUR 5 billion.
The average yield rose marginally to 1.52 percent from 1.47 percent in the previous auction held on May 16. Demand for the safe-haven debt exceeded the offer by 1.4 times, but was slightly down from the 1.5 times seen in May.
Germany also raised EUR 770 million from the sale of its 0.75 percent 2018 inflation-linked Federal notes. The average yield came in at negative 0.31 percent. The bid-to-cover ratio was 2.2.
by RTT Staff Writer
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