Italy to test bond markets

ITALY’S borrowing costs are set to fall at a debt sale today, with its benchmark 10-year yield seen at around 5.20 per cent thanks to support from the European Central Bank, after hitting an 11-year high in July.

The ECB started buying Italian and Spanish government bonds on the secondary market on 8 August to ringfence the Eurozone’s third- and fourth-largest economies from a spreading debt crisis in the bloc.

Italy paid 5.77 per cent to sell 10-year paper at the end of July, the highest in 11 years and up more than 80 basis points from a month earlier.

Investors’ worries about Italy’s ability to repay its €1.9 trillion debt further pushed the 10-year yield to around 6.4 per cent on the secondary market in early August before the ECB stepped in, pushing yields back towards the five per cent level.

Italy cancelled a mid-August long-term bond sale, so today’s BTP auction is the first since the ECB began buying Italian bonds.

Italy is selling up to €3.75bn of a new 10-year BTP bond maturing in March 2022.