MADRID ? Spain and Italy gave financial markets a boost Thursday as they successfully raised nearly euro22 billion ($27.98 billion) in two keenly watched debt auctions that showed renewed investor confidence in their attempts to get a grip on their debt problems.
Spain sold nearly euro10 billion ($12.7 billion) in auctions of bonds maturing in 2015 and 2016, with demand strong and the amount sold double the maximum sought. Italy saw its borrowing costs drop sharply as it sold euro12 billion ($15 billion) in what was also its first test of market sentiment of the new year.
Both debt-laden countries have been the focus of worries they might be dragged further into the crisis threatening the 17 countries that use the euro as their currency that has already forced Greece, Ireland and Italy to seek billions in bailout money.
Buyers took euro8.5 billion in 12-month Italian bonds at a yield of 2.735 percent, sharply down from last month's rate of 5.95 percent. They also bought euro3.5 billion ($4.45 billion) in bonds expiring at the end of May at just 1.644 percent interest, down from 3.251 percent in the last comparable auction.
Market reaction in both countries was good. In the secondary market, where issued bonds are then traded openly, the yield for Italy's benchmark 10-year bond dropped to 6.6 percent from around 7 percent, a perilous level that forced other eurozone nations to seek bailouts.
The rate for the Spanish 10-year bond also dropped back to 5.15 percent after opening at 5.32 percent. The country's Ibex stock market index rallied 1.7 percent after the bond sale.
Meanwhile, the two leading European central banks decided to hold their interest rates Thursday, with the European Central Bank keeping its rate at 1 percent and the Bank of England maintaining its lending rate at a record low of 0.5 percent.
The Italian auction showed that European Central Bank efforts to pump liquidity into the financial sector are working, wrote Nicholas Spiro of Spiro Strategy, a London-based consultancy specializing in sovereign risk.
"Few would have predicted as recently as last month that Italy would be paying as little as 2.7 percent for 1-year paper," he wrote. "This is on a par with Italy's borrowing costs before it got sucked into the eurozone crisis in July."
He noted that Spain's auction also went well but said Italy's funding challenges are of a "different order of magnitude."
"This is not just about the amount the Treasury needs to get out the door this quarter, but about perceptions of Italian risk. As long as Italy remains the focal point for investor anxiety about the eurozone, it will remain under pressure at its auctions," Spiro wrote.
Chiara Cremonesi of UniCredit Research called the auction "extremely positive" and a good omen for a sale of longer-term debt on Friday.
"While it is true that over the last month the shorter maturities have remained well-bid, so strong demand at this tenor does not come as a surprise, today's auction was even better than our expectations." she wrote.
Italy's euro1.9 trillion ($2.42 trillion) in government debt and heavy borrowing needs this year have made it a focal point of the European debt crisis. Fitch Ratings Agency, which has said it will consider whether to downgrade Italy's credit rating by the end of the month, estimates Italy needs to borrow euro360 billion ($458 billion) this year.
Italy has passed austerity measures and is on a structural reform course that Premier Mario Monti claims should bring down Italy's high bond yields, which he says are no longer warranted.
Monti took over in November after Premier Silvio Berlusconi stepped down under market and political pressure.
The former EU commissioner said Thursday that Europe needs to focus not only on fiscal discipline, which is to be enshrined in a fiscal compact still being negotiated, but also coordinate measures to promote growth.
Monti said the EU goal of reducing total debt to 60 percent of GDP in 20 years was "severe, but doable."
Italy's debt currently stands at 120 percent of GDP. Spain's is at 66 percent.
The Spanish auction was the first since the conservative Popular Party took office last month after its landslide election win Nov. 20. It came a day after Parliament approved the government's first austerity measures, a euro15 billion ($19.1 billion) package aimed at reining in the country's swollen deficit.
Spain has a 21.5 percent unemployment rate and its economy is expected to fall back into recession. It has been battling for months to avoid following Greece, Ireland and Portugal in seeking a bailout.
Investors settled for an average interest rate of 3.38 percent to buy euro4.27 billion in three-year paper. The Spanish Treasury said the sale was not strictly comparable to previous auctions but the last three-year bond sale Dec. 15 had an average interest rate of 4.02 percent.
The Treasury also sold euro2.5 billion in four-year bonds with an average yield of 3.75 percent, comparable to 4.87 percent rate last July. In the other bonds maturing in 2016, investors bought euro3.21 billion on a yield of 3.9 percent, down from, 4.85 percent in a November sale.
Marc Ostwald, strategist for Monument Securities described the demand as "very impressive" and said the sale indicated a warm welcome for the government's efforts to quickly bring the deficit under control.
"There is no denying the overall success, particularly as yields are well down on previous equivalent sales, "he said in a note.
Spain's borrowing costs shot up last year but have eased in auctions since the election.
The country has pledged to slash its deficit from 11.2 percent of GDP in 2009 to within the European Union limit of 3 percent by 2013.
Meanwhile, crucial Greek talks continued between the government and its private investors to reach a deal on a bond swap that would reduce the country's debt load and is an integral part of its second bailout package.
Charles Dallara, the head of the Institute of International Finance, which represents the country's private bondholders, was meeting Prime Minister Lucas Papademos and finance chief Evangelos Venizelos.
Greece hopes to finalize the deal soon for the private creditors to take a voluntary 50 percent reduction in the value of their Greek bond holdings. It needs to clinch the deal before it can access any more rescue loans, which it will need to help repay euro14.5 billion in bonds on March 20.
On Wednesday, Venizelos said the negotiations "have advanced and are now at a very good point."
____
Barry reported from Milan. Daniel Woolls in Madrid contributed to this report.
Neesom said the Star's headline about Simon Cowell leaving X Factor, "Telly King Cowell Is Dead," was "was designed to be an eye-catching headline," but she sullenly came around to the notion that it could be misleading. The Guardian quotes her saying, "If one was going to be pernickity about it ? or pompous ? it's wrong isn't it?" The inspiration for the headline turns out to come from replacement judge Gary Barlow's remarks to the paper, which put the word "dead" in quotes in its online story, but let its cover announce the death of a major TV star. "It could be said someone reading this would say 'Oh goodness, he's died," Neesom said. We're not really sure what other first impression she thought readers might get.
Asked about misleading photos of a plane with its engines wreathed in fire, and the during 2010's?Eyjafjallajokul volcanic ash cloud, along with the headline "Terror as Plane Hits Ash Cloud," she said the paper had "maybe over-egged the pudding." That's a quaint way of saying they completely screwed up, which we can surmise from the fact that airports pulled the misleading issue from their newsstands. Newsom told the inquiry the photo came from a television documentary, and since we go in for over-dramatic disaster programming, we actually recognized it from the British Airways Flight 9 episode of Air Crash Investigations. To be fair, the episode was about a plane flying into a volcanic ash cloud. So to be fair, it's a real fake image of a plane flying into a volcanic ash cloud.
Confronted with the Daily Express's headline, "Salt Banned in Chip Shops," Whittow said it was "an experiment," pointing out that "If you couldn't have salt on your chips tomorrow, Mr Jay, you wouldn't be very happy about it." But in fact, salt hadn't been banned. In the fourth paragraph of its online version of the story, the Express explains: "Cash-strapped Lib Dem-run Stockport Council, facing cuts of ?50million over four years, wants fish and chip shops, cafes and Indian restaurants to hide salt shakers behind the counters." We're pretty sure that's not the same thing as a ban, but then we tend to ask for salt for the fries if none is apparent.
As for the headline announcing "75% Say: Quit the EU Now," based on a poll conducted by the anti-European Union Express itself, The Guardian pointed out that a "YouGov poll actually found 28 percent were in favour of quitting the EU, 47 percent in favour of renegotiating the treaty." Whittow said his paper's claim would be justified in the body copy. But that doesn't make much sense, as the Express story posted online leads with this sentence: "Given a choice to stay in or get out ? without the option to renegotiate ? 52 per cent would quit, 31 per cent would stay in, while the rest are 'don?t knows'. " It doesn't make reference to the 75 percent figure again. When Whittow was asked if he thought that could be misleading, he said, "I accept from what you say, yes." 
San Francisco Chronicle
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