UPDATE 1-Italian yields hit 3-month highs at bond auction
MILAN, Sept 27 (Reuters) - Italy paid the highest yield in three months to borrow over 10 years at a bond auction on Friday as the threat of a government crisis revived concerns over the country's ability to deal with its financial problems.
The Treasury sold the top planned amount of 3.0 billion euros of its March 2024 bond at an average 4.50 percent yield, up from 4.46 percent at the previous auction a month ago and reflecting an almost 20 basis point jump in market yields in the last day or so.
A new pledge by allies of Silvio Berlusconi to resign en masse if the centre-right leader is ousted from parliament had triggered selling of Italian bonds on the eve of the auction.
Dealers said that had made pricing of the bonds more attractive for investors. The sale drew 1.4 times as many bids as the bonds on offer - slightly down from a month ago.
A 3 billion euro tranche of five-year bonds maturing in December 2018 did somewhat better, placing at an average 3.38 percent yield that was unchanged from a similar auction at the end of August. Bids totalled 1.4 times the amount sold, compared with 1.2 times previously and analysts said that resulted from the stronger demand for shorter maturities from Italy's own large financial sector.
Italian benchmark 10-year bonds yielded 4.42 percent on Friday, well above Wednesday's closing level of 4.23 percent, and the auction results prompted more selling on both European share and bond markets.
"The auctions came at a time of political uncertainty which negatively affects investors, especially foreign ones," Intesa Sanpaolo fixed-income strategist Chiara Manenti said.
Friday's auction bring Italy's gross debt issuance so far this year to 381 billion euros, or around 81 percent of an upwardly revised funding target of 470 billion euros for the whole year.