Successful debt auctions give boost to Spain and Italy

 

Spain and Italy gave financial markets a boost as they successfully raised nearly €22 billion ($27.98 billion) in two keenly watched debt auctions that showed renewed investor confidence in the countries' attempts to get a grip on their debt problems.

Spain sold nearly €10 billion ($12.7 billion) in auctions of bonds maturing in 2015 and 2016, with demand strong and the amount sold double the maximum sought. Italy saw its borrowing costs drop sharply as it sold €12 billion ($15 billion) in what was also its first test of market sentiment this year.

Both debt-laden countries have been the focus of worries that they might be dragged further into the crisis threatening the 17 countries that use the euro as their currency that has already forced Greece, Ireland and Italy to seek billions in bailout money.

Buyers also took €8.5 billion in 12-month Italian bonds at a yield of 2.735 percent, sharply down from last month's rate of 5.95 percent. They also bought €3.5 billion ($4.45 billion) in bonds maturing in May at 1.644 percent interest, down from 3.251 percent last time.

Market reaction in both countries was good. In the secondary market, where issued bonds are then traded openly, the yield for Italy's benchmark 10-year bond dropped to 6.6 percent from around 7 percent, a perilous level that forced other eurozone nations to seek bailouts.

The rate for the Spanish 10-year bond also dropped back to 5.15 percent after opening at 5.32 percent.

Meanwhile, the European Central Bank maintained its lending rate at 1 percent Thursday with President Mario Draghi saying there were "tentative signs of stabilization of activity at low levels" in the troubled eurozone.

Boosting liquidity has been the institution's principal tool against the crisis as it aims to encourage banks to continue lending to companies so they can operate and grow.

Europe's other leading central bank, the Bank of England, also kept its lending rate at a record low of 0.5 percent.

Nicholas Spiro of London-based consultancy Spiro Strategy said the Italian auction showed that ECB efforts to pump liquidity into the sector were working.

"Few would have predicted as recently as last month that Italy would be paying as little as 2.7 percent for 1-year paper," he wrote. "This is on a par with Italy's borrowing costs before it got sucked into the eurozone crisis in July."

He noted that Spain's auction also went well but said Italy's funding challenges are of a "different order of magnitude."

Chiara Cremonesi of UniCredit Research called the auction "extremely positive" and a good omen for a sale of longer-term debt on Friday.

Noting that while demand for shorter maturities has been strong in recent weeks, she said the auction Thursday "was even better than our expectations."

Italy's €1.9 trillion ($2.42 trillion) in government debt and heavy borrowing needs this year have made it a focal point of the European debt crisis.

Italy has passed austerity measures and is on a structural reform course that Premier Mario Monti claims should bring down Italy's high bond yields, which he says are no longer warranted.

Monti took over in November after Premier Silvio Berlusconi stepped down under market and political pressure.

The former EU commissioner said Thursday that Europe needs to focus not only on fiscal discipline, which is to be enshrined in a fiscal compact still being negotiated, but also coordinate measures to promote growth.

Monti said the EU goal of reducing total debt to 60 percent of GDP in 20 years was "severe, but doable."

Italy's debt currently stands at 120 percent of GDP. Spain's is at 66 percent.

Spain's auction was the first since the conservative Popular Party took office last month after its landslide election win Nov. 20. It came a day after Parliament approved the government's first austerity measures, a €15 billion ($19.1 billion) package aimed at reining in the swollen deficit.

Spain has a 21.5 percent unemployment rate and its economy is expected to fall back into recession.

The Treasury sold €4.27 billion in three-year paper with an average interest rate of 3.38 percent. A Dec. 15 three-year bond sale had a 4.02 percent rate. Yields were also down on two other bond types sold.

Marc Ostwald, strategist for Monument Securities described the demand as "very impressive" and said the sale indicated a warm welcome for the government's efforts to quickly bring the deficit under control.

Spain's borrowing costs shot up last year but have eased in auctions since the election.

The country has pledged to slash its deficit from 11.2 percent of GDP in 2009 to within the European Union limit of 3 percent by 2013.

Meanwhile, crucial Greek talks continued between the government and its private investors to reach a deal on a bond swap that would reduce the country's debt load and is an integral part of its second bailout package.

Finance chief Evangelos Venizelos said Wednesday the negotiations had "advanced and are now at a very good point."

AP

PROMOTED VIDEO
News
video
Life and Style
tech
Arts and Entertainment
Southern charm: Nicolas Cage and Tye Sheridan in ‘Joe’
filmReview: Actor delivers astonishing performance in low budget drama
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
film
Arts and Entertainment
Up my street: The residents of the elegant Moray Place in Edinburgh's Georgian New Town
tvBBC's The Secret History of Our Streets reveals a fascinating window into Britain's past
Extras
indybest
News
Albus Dumbledore, the headmaster of Hogwarts School of Witchcraft and Wizardry has been the teaching profession's favourite teacher
education
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
Luis Suarez looks towards the crowd during the 2-1 victory over England
sport
Life and Style
Cheesecake frozen yoghurt by Constance and Mathilde Lorenzi
food + drinkThink outside the cool box for this summer’s frozen treats
News
John Barrowman kisses his male “bride” at a mock Gretna Green during the Commonwealth Games opening ceremony
peopleBarrowman's opening ceremony message to Commonwealth countries where he would be sent to prison for being gay
Sport
Sir Bradley Wiggins removes his silver medal after the podium ceremony for the men’s 4,000m team pursuit in Glasgow yesterday
Commonwealth games Disappointment for Sir Bradley in team pursuit final as England are forced to settle for silver
Sport
Alistair Brownlee (right) celebrates with his gold medal after winning the men’s triathlon alongside brother Jonny (left), who got silver
England's Jodie Stimpson won the women’s triathlon in the morning
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Junior Research Analyst - Recruitment Resourcer

£18000 - £20000 per annum + OTE £25K: SThree: SThree Group has been well estab...

Senior Analyst - Financial Modelling

competitive: Progressive Recruitment: This really is a fantastic chance to joi...

Associate CXL Consultant

£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...

Business Anaylst

£60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Business Anal...

Day In a Page

Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform