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Interest rates on bonds hit pre-economic crisis lows

Italian paper selling sharply as confidence grows

27 February, 16:32
Interest rates on bonds hit pre-economic crisis lows (ANSA) - Rome, February 27 - Interest rates on the 10-year Italian BTP bond fell to below the 3.5% mark on the secondary market Thursday, the lowest level since January 2006 and a signal of financial markets' confidence in the country's new government.

The drop in yields came shortly before of a big Treasury auction of medium- and long-term bonds.

The interest rate on the five-year BTP Italian State bond dropped to an all-time low at auction as the Treasury sold three billion euros' worth at an average rate of just 2.14%. It also sold four billion euros' worth of 10-year bonds at an average interest rate of 3.42%, the lowest since 2005. As well, the interest rate on the six-month Italian State BOT bond dropped to a new low at auction on Wednesday.

The Treasury sold all 8.5 billion euros' worth of the BOTs it put on the market at an average rate of 0.455%, the first time since the introduction of the euro common currency that it has gone below the 0.5% mark.

The rate at the last equivalent sale in January was 0.59%.

The high demand and low yields come within days of the confirmation of Premier Matteo Renzi's government, through confidence motions on Tuesday.

That same day, the Treasury sold 2.5 billion euros' worth of CTZs set to mature in December 2015 at an all-time low of 0.822%, down from 1.031% at the last equivalent sale.

It also sold one billion euros worth of BTP bonds linked to the eurozone's inflation index, at an average interest rate of 1.2%, down from 1.39% at the previous sale.

Italy risked a complete financial meltdown in late 2011, when the rate on the 10-year-bond peaked at over 7%, with the spread between it and the German benchmark above 500 points.

That crisis led to the collapse in November 2011 of ex-premier Silvio Berlusconi's third government.

On Thursday, the spread reached 191 basis points.