Soaring yields push ECB debt over €200bn

ITALY and Belgium saw their debt costs rocket to new records in bond auctions yesterday in an ominous precursor to Rome’s much larger long-dated debt sale this morning.

Despite an early market rally due to reports of a bailout plan for Italy, Rome was forced to pay over 7.3 per cent plus inflation to borrow just €567m (£487m) yesterday, a drop in the ocean compared to its €8bn debt auction set for this morning.

If Rome sees similarly muted demand this morning, the European Central Bank (ECB) will almost certainly have to ramp up its bond purchases, which came to €8.58bn last week.

The ECB now holds more than €203bn of mostly junk sovereign bonds, having stepped up its purchases in recent weeks in response to rising yields for Europe’s biggest seller of debt, Italy, which is widely regarded as “too big to bail”.

Belgium saw a reasonable level demand for its €2bn sale but paid an average yield of 5.7 per cent, significantly above the 4.4 per cent it was forced to stump up at the last equivalent auction less than a month ago.

Market hopes that Europe’s elites could be putting together yet another bailout package or preparing to unleash the ECB’s full firepower were dashed later in the day by German finance minister Wolfgang Schäuble, who talked down the idea of using the ECB as a lender of last resort and again rejected the idea of issuing joint “euro bonds”.