Italy just raised $6.5 billion selling debt — but the prices show just how little faith markets have in the country
- Italy auctioned a total of €5.6 billion ($6.5 billion) of debt on Wednesday.
- The stricken southern European nation sold €1.75 billion of five-year bonds, €2 billion of seven-year bonds and €1.8 billion of 10-year debt.
- While it succeeded in selling its debt, Italy was forced to pay a major premium in yields.
- This reflects the lack of market faith in Italy right now.
Italy held a successful bond auction on Wednesday in the midst of its deepening political crisis.
But the country paid a significant premium to borrow money, showing just how quickly investors are losing faith in the country.
A bond auction on Wednesday morning saw a total of €5.6 billion ($6.5 billion) of debt sold, with investors picking up €1.75 billion ($2 billion) of five-year bonds, €2 billion ($2.3 billion) of seven-year bonds, and €1.8 billion ($2.1 billion) of 10-year debt.
Investors were happy to buy the debt but yields were significantly lower compared to the last time it auctioned similar bonds. On Wednesday, Italy paid a yield of around 2.3% to sell the five-year bond, compared to a yield of around 0.6% at the last auction, according to a report from the Financial Times.
It was a similar situation for both the 10 and seven-year debt sold. 10-year debt commanded a yield of 3%, compared to 0.3% last time, while seven-year debt has a yield of 2%, compared to 1.7% at the last bond auction
The lower the yield on a bond, the safer it is perceived as being, so the increased yields paid by Italy represent a rising risk premium. Investors are growing more worried they won’t get their money back.
Italian bonds have gone haywire in recent days. The benchmark 10-year BTP, as the sovereign bond is known, saw its yield increase 12% to 3.008% on Tuesday, reaching a high not seen since 2014.
Things calmed a little on Wednesday, with Italian bond prices holding fairly steady as global markets calmed. Yields could spike higher though, according to Citi. The bank’s Fx Technicals team said the 10-year yield could rise as high as 4.4%.
Italy’s political situation deteriorated rapidly over the weekend, with the prospect of a fresh general election in the next few months now looming large. Commentators fear a vote could effectively become a referendum on Italy’s membership of the euro.
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