Euro dipped briefly against the dollar after the results of a key Italian bond auction. The yields on the 10-year bonds rose 60 basis points more than a previous auction of similar paper. Borrowing costs are now at 5.84 percent compared to 5.57.
However, the debt auction was well received, with the top sales target range reached at 5.95 billion euros of bonds. The range was set for between 3.75 billion and 6.25 billion euros. The sale was covered 1.48 times, slightly down from 1.65 times a month ago.
Five- and 10-year auction yields are now at their highest since January. But Italian bond yields have erased a drop recorded in February and March thanks to cheap European Central Bank funds through the LTRO (Long term refinancing operation) which increased liquidity in the financial system.
Italy is the third largest euro zone member country and its debt burden is of concern to the markets. Spain has just been downgraded by Standard and Poor’s on the basis that it expects the Spanish government’s budget deficit to deteriorate even more than previously thought due to economic contraction.