Big bond auctions in Italy, Spain give surprising boost

PanARMENIAN.Net - Big bond auctions in Italy and Spain gave a surprising boost to the biggest countries reeling under Europe's debt crisis, with Italy selling a record €18 billion ($24 billion) worth - enough to satisfy its borrowing needs for the rest of the year in one unexpected stroke, The Wall Street Journal reports.

Spain also met high demand for some €4.6 billion in bonds, a sale that was buoyed by a decision earlier in the week by Moody's ratings agency not to relegate the country's debt to junk status. The ratings decision, and subsequent successful auction, was largely based on the expectation that Spain will eventually obtain financial assistance from the European Union, though paradoxically the improving bond picture could ease the urgency for Madrid to make that move. Spain's bond yields also continued to improve, to 5.321%, the lowest since early April.

Italy largely tapped its own citizens for the sale. BTP Italia bonds - a four-year bond linked to Italian, rather than euro-zone inflation - was designed for Italy's retail investors, who were allowed to buy the bonds via an new eBay-like Internet platform and qualified for a special "loyalty premium" of an extra 40 basis points if they hold the securities to maturity.

Both countries continue to face big political pressures: Spanish Prime Minister Mariano Rajoy is reluctant to ask for the financial help that both the International Monetary Fund and European Central Bank are urging Spain to seek because he fears the political consequences submitting to conditions set by the euro zone and the IMF.