(Recasts, adds details and background)
MILAN Dec 29 Italian borrowing costs fell at
the final bond auction of the year on Thursday in a sign of
resilient investor appetite for the country's debt as the
government prepares to rescue ailing bank Monte dei Paschi di
Siena and other weak lenders.
Italy sold 6.75 billion euros ($7 billion) of debt over four
bonds, at the top of its planned range for the issue.
Borrowing costs had risen sharply at the last auction in
late November as investors fretted about looming political
instability in the wake of a Dec. 4 referendum on constitutional
reform. Prime Minister Matteo Renzi resigned after the vote.
Concerns have receded as the transition towards the new
government led by Renzi's loyalist Paolo Gentiloni has been
relatively quick and smooth. Gentiloni has also announced
measures to bolster the country's vulnerable banking sector,
including a 20 billion euro state fund, addressing another
source of investors' worry.
But doubts remain over whether the banking fund will be
sufficient and over the exposure to bad loans of Italian banks,
which hold a high proportion of government debt.
Italy has taken longer than other European countries to
stabilise its banks, still saddled with 360 billion euros in
impaired assets, about a third of the euro zone's total.
Italy's benchmark 10-year debt costs fell to 1.77 percent on
Thursday compared to 1.97 percent at a late November sale.
Demand totalled nearly 1.42 times the amount sold compared with
a bid-to-cover of nearly 1.6 times at the previous one.
Italy also sold a five-year bond paying 0.54 percent, down
from 0.91 percent when it last sold the bond on Nov. 29,
alongside CCTeu notes and an off-the-run Nov. 2026 bond.
($1 = 0.9567 euros)
(Reporting by Giulia Segreti; Editing by Elaine Hardcastle)