Italian debt costs edge up to three-month high

Italy's five- and 10-year debt costs edged up to a three-month high at an auction today, echoing the rise seen in the yields of shorter-dated debt after the Federal Reserve laid out plans to slow monetary support.

Market sentiment, however, has improved since the beginning of this week and demand for the Italian bonds was decent, allowing Rome to sell all it wanted at the last of end-month debt auctions.

Investors bought €2.5 billion of 10-year bonds, cashing in a return of 4.55 per cent, up from the 4.14 per cent they received one month ago on the same paper. This was the highest yield since March. Demand was 1.46 times the offer, up from a bid-to-cover of 1.38 at the previous sale. Rome also sold €2.5 billion of five-year bonds, with a yield of 3.47 per cent, up from 3 per cent.

Italy’s benchmark bond yields are still about 80 bps above this year’s lows hit in early May, but some 25 bps below this week’s highs, having fallen due to what traders called “verbal intervention” by the ECB.

ECB president Mario Draghi has repeatedly said the central bank is far from ending its ultra-easy policy, a message also underlined by his French colleague Benoit Coeure on Monday.

Such comments also helped lift German Bund futures off Monday’s eight-month low of 139.90. They were last 14 ticks higher on the day at 141.17, still some two points below where they stood before the Fed’s announcement.

“We’ve had pretty supportive news this week and there’s also month-end buying,” one trader said.

Spanish 10-year yields also fell, down 9 bps at 4.72 per cent, and Portuguese yields fell by a similar amount to 6.63 per cent.

Reuters