Italy and Spain saw their borrowing costs ease on Monday as investor confidence improved on hopes of some crucial action from the European Central Bank, which holds its rate-setting session later this week.
The central bank of the 17 nations having euro as their currency is expected to adopt some bolder moves to handle the debt crisis. Hopes are high after ECB President Mario Draghi pledged last week that the bank is ready to do whatever it takes to defend the euro.
The Italian Treasury sold a total EUR 5.48 billion bonds, known as BTPs, maturing in 2015, 2017 and 2022, against a maximum target of EUR 5.5 billion.
The country raised EUR 2.5 billion from the sale of its benchmark 10-year bond due September 2022, which matched the upper end of the target for the sale.
The yield on the 10-year bond dropped to 5.96 percent from 6.19 percent on June 28. The bid-to-cover ratio, which mirrors demand, edged up to 1.29 from 1.28.
The 5-year debt fetched a yield of 5.29 percent, down from 5.84 percent at the previous sale on June 28. Demand was 1.34 times the offer, weaker than 1.54 times last month.
The country also sold EUR 750 million worth of November 2015 bonds, which is no longer a regular issue. The yield on the debt was 4.49 percent, up from 3.92 percent in the previous tap on April 12.
Elsewhere, Spanish 10-year bond yield fell to 6.59 percent in the secondary market, while the Italian benchmark dropped to around 5.90 percent.
The decline came despite some worrying news on the data front. Preliminary data from the statistical agency INE revealed that the economy sunk deeper into recession in the second quarter with a 0.4 percent contraction following a 0.3 percent shrinkage in each of the previous two quarters.
The Eurozone outlook also looks increasingly bleak as rating agency Standard & Poor's today cut the 2013 growth forecast for the region to 0.4 percent from 1 percent.
Germany, France and Italy have supported Draghi's pledge of protecting the euro. Investors are eagerly waiting to see whether he would deliver on his promise on August 2.
Eurogroup Chief Jean-Claude Juncker said in interviews published over the weekend that Eurozone will work with the ECB to solve the crisis. The single currency area is at a decisive point and there was no time to lose, he added.
Draghi's assurance from last Thursday is seen as a signal that the ECB may consider resuming the purchases of government bonds. He is apparently on a mission to get different governments and central bankers to agree on measures to help lower borrowing costs for troubled euro nations.
The ECB bond-buying scheme known as the Securities Market Programme was suspended in March. It is also speculated that the bank would propose that Eurozone's permanent bailout fund, the ESM, must be allowed to buy bonds of troubled euro nations.
The ECB Chief is set to hold talks with U.S. Treasury Secretary Timothy Geithner in Frankfurt on Monday. He will also meet Bundesbank President Jens Weidmann, who is a strong opponent of the ECB bond purchases.
by RTT Staff Writer
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