Yields on Italian five year bonds hit their highest level since the introduction of the euro a decade ago after an auction this morning.
Italy sold €3.9 billion of September 2016 notes at an average yield of 5.60 per cent amid lower demand. Investors bid for 1.28 times the amount on offer, compared with a bid-to-cover ratio of 1.93 at a previous auction of similar-maturity debt on July 14th.
The bonds fell even as the ECB bought Italian debt in the secondary market. Italy has been dependent on support from the European Central Bank to keep a lid on its borrowing costs for over a month but a surge in bond yields over the past week suggests that financial market sentiment has turned against Rome.
The auction "is not particularly inspiring and it has been assisted by the talk of ECB action before it," said Eric Wand, a bond strategist at Lloyds Bank Corporate Markets in London. "Until policymakers come up with the goods people are going to continue to shun peripheral paper. If the ECB hadn't intervened yields would have been a lot higher. There aren't many investors out there who are willing to put their money on the table."
Italian two-year note yields climbed 30 basis points to 4.81 per cent this morning in London.
The euro fell against the dollar after the results, which did nothing to allay concerns that the euro zone's crisis is still deepening and could spur another banking crisis.
Earlier, a Treasury spokesman confirmed that Italian Economy Minister Giulio Tremonti met Chinese officials last week, after the Financial Times reported that Rome had asked China to buy "significant" quantities of its debt.
The spokesman declined to comment on the substance of the meeting with a delegation that a second source said included the head of China Investment Corp Lou Jiwei and officials in charge of investment and fixed income. There were separate meetings with state investment agency Cassa Depositi e Prestiti.
Bloomberg/ Reuters
