Story highlights
Italy's borrowing costs fell slightly on Monday as the Treasury sold €7bn of one-year bills
For the first time Italian banks scrapped their fees for retail investors who bought the bills at auction
Monti warned that Italy faces a Greek-style "collapse" if the package is not approved by parliament
Italy’s borrowing costs fell slightly on Monday as the Treasury sold €7bn of one-year bills to yield 5.952 per cent with demand nearly double the amount on offer.
The rate compared with 6.087 per cent at the last auction of one-year bills on November 10, when Italy’s debt yields hit euro-era highs during the collapse of Silvio Berlusconi’s centre-right government.
For the first time Italian banks scrapped their fees for retail investors who bought the bills at auction on Monday. On November 28, banks lifted their fees for retail investors buying bonds on the open market, as a privately initiated campaign began to encourage “patriotic” Italians to buy their national debt.
Italy’s borrowing rates eased after the new technocratic government led by Mario Monti approved a net €20bn austerity package on December 4 but rose again late last week as the European summit failed to please markets.
Mr Monti, who has warned that Italy faces a Greek-style “collapse” if the package is not approved by parliament, failed in talks on Sunday night to avert a three-hour strike on Monday by trades unions protesting against the impact on low earners.
The yield on Italy’s benchmark 10-year bonds was trading at about 6.57 per cent after Monday’s auction, with the spread over German bunds at 451 percentage points, down 125 points from the euro-era high reached on November 9.
The Bank for International Settlements said in its latest quarterly report published on Sunday that Italy would be able to sustain the higher borrowing costs on its €1,900bn debt “for some time, provided it retains access to the market” thanks to the relatively average maturity of seven years.
It said that if the yield curve observed on November 9 persisted throughout 2012 then the additional yearly cost would amount to 0.95 per cent of 2010 GDP. Over three years the additional costs would exceed 2 per cent of GDP.
Confindustria, the main employers association, said this month that Italy’s debt-servicing costs would rise to 5.1 per cent of GDP in 2012 from 4.2 per cent this year, and climb to 5.6 per cent in 2013 if 10-year bond yields remained near 7 per cent.
Italy’s next bond auction is on Wednesday when its plans to raise €3bn of five-year debt.
