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Italy Successfully Sells Ultra-Short Maturity Debt
Despite European banks hoarding cash at the ECB at record levels as observed previously, Italy succeeded in selling ultra short maturity debt earlier today at interest rates that confirm Europe has managed to stabilize near-term expectations. Specifically, as Reuters reports, Italy sold 1.7 billion euros of 24-month zero-coupon bonds on Wednesday at an average 4.85 percent rate, sharply down from an auction yield of 7.8 percent a month ago. The Bid to Cover was 2.24 compared to 1.59 previously. Nonetheless, this amount was less than the maximum 2.5 billion euros targeted at the auction. Italy also sold 9 billion euros of six-month bills at an average yield of 3.25 percent on Wednesday, half of what it paid a month ago to sell six-month paper at a bid to cover of 1.69 compared to 1.47 previously. Lastly, the fact that Italy can place debt in under 2 years when the LTRO itself has a 3 year maturity means that the real issuance test will come tomorrow when Italy is on deck to sell 3 Year bonds. As for 10 year BTP, which were trading at over 7% as recently as overnight, that is a different story completely.
Reuters with further observations:
"Many things have changed from a month ago: the government has won a confidence vote on its austerity package and the ECB has acted to help banks," an Italian bill trader said.
"This doesn't mean we can rule out further problematic auctions. Markets are easily unnerved."
Demand for bills totalled 1.69 times the amount on offer, a clear improvement versus a bid-to-cover ratio of around 1.5 at the end of November.
This is the first Italian debt sale since the ECB provided 490 billion euros in cheap three-year loans to euro zone banks on Dec. 21 in an unprecedented move aimed at easing credit strains.
Expectations of a strong take-up at the ECB's tender contributed to an equally dramatic fall in Spanish short-term borrowing costs this month.
Madrid's six-month debt costs more than halved to 2.4 percent at an auction on the eve of the ECB's tender.
However, doubts about how much of the cheap three-year funds would find their way into troubled government bonds weighed on Italian and Spanish yields in the following sessions.
Italy's ten-year yields briefly climbed back above 7 percent this week, pushing the premium over the equivalent German benchmark above 500 basis points .
On Wednesday, the yield stood at 6.8 percent, giving a premium of 489 basis points over Germany.
Credit Agricole strategist Peter Chatwell said the results bode well for the auction of three-year bonds on Thursday but he was less sure about the 10-year sale - typically a better measure of underlying interest from external investors.
"Demand for short term paper is good. It remains to be seen whether this extends to the longer maturities," he said.
Italy paid a euro lifetime record high yield of 7.56 percent to sell ten-year bonds at the end of November.
And while the market can rejoice that all is well for at least another 24 hours the real question is where will actual growth come from:
Italy can count on key support from retail domestic investors at short-term sales but longer-term bonds remain more challenging. With more than 91 billion euros of bonds maturing in the first four months of 2012, Rome faces a crucial test early next year.
In a push to regain market confidence, in the run-up to Christmas Italy's parliament gave the final seal to an emergency austerity budget rushed through by a new technocrat government.
Market attention will now turn to the reform agenda of Prime Minister Mario Monti who has promised to tackle Italy's chronic low-growth problems -- after inaction by former PM Silvio Berlusconi pushed the country to the brink of financial disaster.
Monti has convened a cabinet meeting on Wednesday to outline his plans and he could provide some indications to investors in his traditional year-end press conference on Thursday.
Analysts expect Monti's 33 billion euro austerity package to further depress Italy's weak internal demand, making government's efforts to revive growth through a series of long-delayed liberalisations even more crucial.
Italy also sold on Wednesday 1.7 billion euros of 24-month, zero-coupon CTZ bonds at an average yield 4.85 percent, sharply down from 7.8 percent a month ago.
For the first time, the Treasury set a target range for the CTZ sale, as it does for other bonds. It gives a set amount for bill auctions.
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bullish bitchez - good for another 1% rally
Banks have been pressured on corridors to buy this shit.
So they can lend the long term to the corrupt failing socialist government to prop up banks that should fail????... Yep, I'm familiar with that model. I suppose in two years maybe we will be told the truth it was Fed funds.
But...but....but Europe is failing, the Euro is on its death-bed, Italy is about to default......Just shows it's all bollox. The central banks won't let the Euro fail. Maybe they'll just wait for WWIII.
The Titanic didn't sink right away...and the band played on.
Demand was boosted by jars of my Grandmothers' fresh pesto. Gratis...
Italy seems to have quite moderate debt level at households. Surely they could incentivise/force the Italian public to participate in the debt auctions. Here is one source of the debt composition by countries:
http://www.gfmag.com/tools/global-database/economic-data/10403-total-debt-to-gdp.html
I'm sure they could if backed into a corner. So far no need for drastic measures. The Euro crisis is over.
I'm getting bored now. I want a new crisis!
Has forced government bond purchases been tried before somewhere?I guess banks don't like them since they would lose low-cost deposit funding.
However, households might not mind that much for the same reason - they would get a yield pick-up and same security level compared to domestic banks.
Governments could start their own money-market fund waiving investment fees and costs to make it easy.
one down, 50 more to go
Is this all setting up to end euro in 2014?
Italy should concentrate on shorting its debt.
I smell a Bernanke.
There are special carpet products for that
Well if Greece can sell it..why can´t Italy...who cares that their economy is tanking....lol...its..its..paper..
new year is right around the corner..lets face reality on jan 3rd..this was a sure thing, what about the next, next and next..
I had a nice bottle of chianti over Xmas. Perhaps I'll buy another. That will lead to another surge in confidence.
they may have bought themselves a few years before they face reality and that seems long enough to kill a lot of shorts.
Nothing like living pay check to pay check. Next up pay day advance loans.
Did Bernanke buy it all?
24m (with zero coupon), is short, but calling it "ultra-short" is a bit of a stretch...
What are Draghi and Benny going to do with 1.7 billion in Italian bonds?
the corrupt system pukes out the garbage and than the corrupt system eats it back up again. Soon the corrupt system will unload the puke on to the people in the form of taxes and devaluation of their standard of living.
You think the Italians want to give up their black market economy with no taxes and easy living, when for so long the american people have been taking it on the chin.
What the system needs are more financial geniuses to soicialize the losses and privatize the gains. The Greeks and Italians will not stand for a 50% reduction in standard of living overnite, it will take time to boil the frogs in the water, must be done slowly so the frogs don't jump out of the pan.
LOL Well, they had better continue to keep Italy afloat for as long as they possibly can. Unfortunately, that's merely a desperate ploy. Italy is going to burn the Europizza and everyone says so (privately at least).
You know nothing about Italy. Italy is a rich country and Italians are way less indebted than Americans or British. The Italian government got the exactly same debt burden as 20 years ago, 120 GDP. Private wealth is very high, seven trillion euros. Back then interest rates peaked at 15 percent and stayed above 10 until 1996. Still no default. USA debt growth is now fastest in the world.
Americans once again tried to paint the whole EU with the same brush in their shorting games and got their asses handed to them...again.
Anyone know if the LTRO collateral to ECB is managed in the same way as any other repo; ie, additional collateral has to be provided where MTM reduce the value of the original collateral?
Probably succeeded because France pledged used boobs as collateral to the fed/ecb for the bond purchases
http://www.msnbc.msn.com/id/45778822/ns/health-womens_health/t/france-pa...
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