Large bond auctions showed creditors are willing to give Spain and Italy another chance even as Spain seemed closer to asking the European Central Bank (ECB) for a bailout. Italy alone sold a record €18 billion, an amount that will meet the country’s needs through the end of the year.
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Spain sold €4.6 billion after Moody’s ratings agency decided not to downgrade the country’s debt to junk status.
The basis for the stay in the downgrade was the likelihood that Spain would soon receive assistance from the ECB.
Most of Italy’s bonds were bought by mom and pop investors, long held to be the holders of untapped riches in a country beset by sovereign debt woes.
Institutions also bought but the largest sales went to Italian citizens for whom the bonds were tailored.
The bonds were sold in an eBay-like forum and investors were given an extra 40 basis point loyalty premium to hold the securities to maturity.
Even so, Italy’s debt costs are not expected to retreat soon. Both countries continue to face mounting political pressures as citizens grow weary of the stiff austerity measures tied to bailout aid.
While Spain and Italy tend to get lumped together as the Eurozone crisis progresses, the differences revealed in the two auctions could affect the resilience of each
For example, the more Italian citizens who buy Italian bonds, the more Italy’s high debt costs will remain inside the country.