Italy faces a crucial test on Thursday as the technocrat government of Mario Monti launches its first big auction of long-term bonds since a disastrous upset a month ago.
The outcome will set the tone for a string of debt sales through early 2012 that risk stretching the eurozone bond markets to breaking point.
The EU authorities are hoping commercial lenders will use last week’s flood of cheap liquidity from the European Central Bank to soak up southern European debt and bring yields back under control, starting with Italy’s €8.5bn (£7.1bn) sale of 10-year bonds today. The country must raise €440bn in debt in 2012, beyond the current fire-fighting power of Europe’s bail-out machinery.
Rome managed to sell €9bn of six-month bills at 3.25pc yesterday – half the rate paid in near-panic conditions last month – but there was no follow-through to longer-term maturities and the rally in Europe’s equity and credit markets quickly spluttered out. “Even bankrupt states like Greece can sell bills: what matters is the long end of the credit curve, and this hasn’t moved much,” said Jacques Cailloux, Europe economist at RBS.
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See Also:
Euro jitters continue as markets braced for key Italian bond auction
Martin Feldstein: French ‘don’t get’ problems at euro’s heart
Angela Merkel’s economic adviser Weder di Mauro refuses to rule out eurozone break-up
Warner: Euro crisis blocks the path to full economic recovery
Cowie: Cheap money cuts bankruptcies – but beware worse to come in 2012
Afternoon Updates:
12:11 pm EST, December 29th, 2011 — Hanson: The New Old Europe
12:19 pm EST, December 29th, 2011 — EU bailout fund needs much more firepower: Monti
12:21 pm EST, December 29th, 2011 — TSX posts moderate gain at midday
12:25 pm EST, December 29th, 2011 — Italian bond auction highlights eurozone nation’s woes
12:29 pm EST, December 29th, 2011 — Eurozone credit crunch fears on M3 money contraction
12:32 pm EST, December 29th, 2011 — Predictions for 2012: economic recovery
12:34 pm EST, December 29th, 2011 — Hannan: Should Britain and the United States merge?
12:36 pm EST, December 29th, 2011 — Britain’s Future Lies With America, Not Europe
12:40 pm EST, December 29th, 2011 — Debt crisis stole Christmas in Europe
12:47 pm EST, December 29th, 2011 — Eurozone debt crisis brings little New Year cheer