Italian yields stay high despite ECB leader’s words of comfort

City A.M. Reporter
A RALLY in Italian government bonds showed signs of flagging yesterday as investors waited for European policymakers to back up pledges to safeguard the euro with new anti-crisis measures, while data showed Spain falling deeper into recession.

Italy’s borrowing costs fell at a debt sale but remained elevated in a sign that nervousness was setting in after the high expectations created by last week’s comments from European Central Bank (ECB) president Mario Draghi, who said it would do whatever it took to preserve the common currency.

Italy sold €5.48bn (£4.28bn) in bonds yesterday morning, near the top of its issue range. Benchmark 10-year borrowing costs fell to 5.96 per cent from 6.19 per cent a month ago. The auction marked the first time since April that yields printed below six per cent.

However, yields sprung above six per cent during the course of the day, ending narrowly up.

Also signalling investor edginess, German Bunds clawed higher while 10-year borrowing costs for Belgium fell sharply, underscoring its status as a relatively safe bet for investors seeking return given the slide in German yields to record lows.

Meanwhile, official estimates showed Spain’s economy shrinking 0.4 per cent in the second quarter after contracting 0.3 per cent in the first three months of the year.

The Spanish economy was one per cent smaller than a year earlier, the data suggested.