The Treasury sold the 3-year benchmark bonds to yield 3.89%, highest since January and up from 2.76% at the previous auction on March 14. Investors bid for 1.43 times the amount offered, down from 1.56 times last month. The Rome- based Treasury also sold 2 billion euros of bonds due in 2015, 2020 and 2023. The auctions maximum target was 5 billion euros.
Contagion fears are back in Europe and Spain is the top worry, so peripheral spreads are likely to remain under pressure and probably widen further in the short term, Gianluca Ziglio, an interest-rate strategist at UBS in London, said in a phone interview before the auction.
Italian bonds have declined for the past four weeks after Spains March 2 announcement that it wouldnt meet its 2012 deficit goal fuelled bailout concerns and eroded confidence in the debt of so-called peripheral countries. The month-long slump has reversed some of the gains in Italian bonds prompted by prime minister Mario Montis efforts to spur the economy and the European Central Banks unlimited three-year lending operations.
A good part of the current turbulence in debt markets is due to Spanish contagion, said Maria Cannata, head of Italys debt agency.
The yield on Italys 10-year bond was down 6 basis points to 5.475% after the auction at 11:33 am in Rome, pushing the difference with similar-maturity German debt to 370 basis points. Spanish bonds have fared worse, with 10-year rates climbing about 1 percentage point to 5.88% since prime minister Mariano Rajoy told European Union allies on March 2 the nation couldnt meet its deficit goal for this year. Spain is now pledging a shortfall of 5.3% of gross domestic product, compared with an original commitment of 4.4%.