Italy's borrowing cost declined at its short-term bill auction on Friday after the European Central Bank chief vowed to take whatever action needed to protect euro.
The Italian Treasury raised EUR 8.5 billion from its 6-month bill auction, meeting the maximum target. The yield fell to 2.454 percent from 2.957 percent at the last issue on June 27.
Demand exceeded the size of the offer by 1.61 times, the same as last month. Italy is set to test the debt market again on Monday, when it sell 5- and 10-year bonds.
ECB President Mario Draghi on Thursday said the bank is prepared to take whatever measures needed to preserve the euro and act on rising bond yields.
"To the extent that the size of these sovereign premia hamper the functioning of the monetary policy transmission channel, they come within our mandate," Draghi told an investment conference in London.
Draghi's remarks raised hopes of more action to ease debt crisis in Italy and Spain at the next rate-setting meeting on August 2.
French newspaper Le Monde reported that the ECB is preparing to purchase Italian and Spanish bonds in the secondary markets. Following these reports, Italian bond yields went below 6 percent, and Spanish 10-year bond yields below 7 percent early Friday.
Nonetheless, Bundesbank today reiterated that it oppose bond purchases.
Earlier this month, the ECB cut its key rate below 1 percent for the first time in its history. That 25 basis point reduction was the first since December and third since Draghi became the ECB President in November.
by RTT Staff Writer
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