September 13, 2012 / 10:13 AM / 5 years ago

ECB pledge pushes Italy yields down at auction

MILAN (Reuters) - Italian three-year borrowing costs fell to their lowest in almost two years at an auction on Thursday, adding to signs that the euro zone's debt crisis may be easing after strong moves by the European Central Bank.

The Treasury also paid lower yields to sell its first 15 year bond in more than a year, indicating longer maturities too are benefitting from the ECB's plan for buying bonds issued by the euro zone members struggling most with high public debt.

"It really does go to show how much optimism there is on the back of the OMT (ECB bond-buying plan)," said Marc Ostwald, a strategist at Monument Securities.

A ruling on Wednesday by Germany's top court giving its backing to the euro zone's new rescue fund - and allowing the ECB to act should it be asked by a government - has added to the positive sentiment.

Italy sold the maximum targeted amount of 6.5 billion euros of bonds, a higher size than recent mid-month sales.

Analysts said reopening the 15-year bond for the first time since July 2011 denoted confidence and was important because it allowed Italy to marginally offset the moderate decline in its average debt maturity.

They noted however that the bid-to-cover ratio on the three-year issue had fallen to 1.485 from 1.732, taking some gloss off an otherwise solid auction.

"There is decent demand out there for risk and peripheral paper and obviously yesterday's German court ruling and last week's ECB announcement have underpinned this move," said Michael Leister, rate strategist at Commerzbank in London.

The auction yield on the 2015 BTP fell to 2.75 percent from 4.65 percent at the previous sale in mid-July, a shade under the rate the Treasury paid in mid-March 2012 and the lowest level since October 2010.

Rome had skewed the auction towards this maturity and managed to sell its top targeted amount of 4 billion euros.

The yield on the 2026 bond came in at 5.32 percent from 5.9 percent at the previous auction in July 2011.

Italy also sold 1 billion euros of 2017 off-the-run bonds.

Reporting by Silvia Aloisi and London bonds desk, editing by Patrick Graham

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