Thursday, 29 December 2011

Italy's borrowing costs fall but so does the euro

The Italian government's debt auction on Wednesday proved quite successful. The Treasury sold 9 billion euros of six-month bills at a rate of 3.251 percent, down from 6.504 percent at the last auction. It also sold 1.7 billion euros of zero-coupon notes due in 2013 at 4.853 percent, down from 7.814 percent at the last auction.

Markets still ended the day down however. The euro fell, hitting a 10-year low against the yen, while the S&P 500 fell back into the red for the year. Despite the successful sale of short-term debt, Italy's 10-year yield ended the day practically unchanged at 7.0 percent.

The weakness in markets was at least partly attributed to a report from the ECB on Wednesday showing that its balance sheet had soared to a record 2.73 trillion euros after its lending to euro-area banks jumped 214 billion euros to 879 billion euros last week.

There were few economic reports on Wednesday apart from Japan, which reported a 2.6 percent fall in industrial production in November as a result of the floods in Thailand. A survey of forecasts by companies showed that output was expected to recover and grow by 4.8 percent in December and 3.4 percent in January.

Other reports from Japan on Wednesday showed that core consumer prices fell 0.2 per cent in November from a year earlier, household spending fell 3.2 percent and retail sales fell 2.3 percent. The unemployment rate was 4.5 per cent in November, unchanged from the previous month.

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