Italy borrowed 10-year funds at the highest yield since December as investors looked forward to a crucial European Union summit aimed at finding permanent solutions to the sovereign debt crisis that has engulfed the euro area.
The country sold its 5- and 10- year bonds at a debt auction on Thursday and the amount raised was slightly less than the maximum target set for the sale.
Elsewhere, Spain also struggled with rising borrowing costs today. The benchmark 10-year Spanish yield shot up to 7 percent ahead of Italy auction.
Hopes of the latest summit, which is the 19th one on the crisis, producing any solid solution are already dim with German Chancellor Angela Merkel sticking to her opposition to any debt-sharing arrangement in the region.
"The only element this week's summit could already decide, is a European bank supervision, which could be regarded as a first step towards a banking union," ING Bank Economist Carsten Brzeski said.
"Such an outcome would clearly not lower bond yields in peripheral countries, but it could at least be sufficient to keep the ECB at it."
That would not automatically trigger new non-standard measures, but could at least be another argument for a rate cut next week, Brzeski added.
The Italian treasury raised a total EUR 5.423 billion from the sale of its treasury bonds or BTPs due June 2017 and September 2022. The maximum target for the auction was EUR 5.5 billion.
The benchmark 10-year bond with a 5.50 percent coupon was sold at a yield of 6.19 percent, up from 6.03 percent paid on May 30. The country sold EUR 2.923 billion of this security against a target of EUR 2 billion - EUR 3 billion.
Investors bid 1.28 times of the long-term bonds offered, down from 1.40 times in the previous sale.
The agency also placed the EUR 2.5 billion of its 4.75 percent June 2017 BTP to yield 5.84 percent, which was higher than 5.66 percent paid in the previous sale on May 30.
The treasury had planned to raise between EUR 1.75 billion and EUR 2.5 billion from the auction. The bid-to-cover ratio, which reflects demand, rose to 1.54 from 1.35.
The EU summit that begins in Brussels comes in a week that has seen two more Eurozone nations seek bailouts. Cyprus was the latest in the league after it made a formal request for aid to support its banking sector, just hours after Spain furnished its plea.
The Cypriot banking sector is reeling under the pressure from its high exposure to Greece, where the new government under Antonis Samaras is yet to settle down. Investors are worried if Italy with its fiscal problems would emerge the sixth euro member to seek a bailout.
by RTT Staff Writer
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