Italy saw its borrowing rates fall for the second day running on Thursday but the country's new premier said his government had a lot more to do to convince nervous financial markets that it had a plan to deal with its debt mountain.
Mario Monti said he was encouraged by two days of bond auctions and that his government of technocrats, in office for just a month and a half following the resignation of Silvio Berlusconi's government, was working intensively on preparing a package of measures to get the Italian economy moving again, including efforts to boost competition and liberalize the labor market.
"We absolutely don't consider the market turbulence to be over," he said in a press conference just after the Bank of Italy reported that the country had tapped investors to the tune of around 7 billion euros ($9.2 billion) in a range of auctions.
The most keenly-awaited result from Thursday's batch of auctions was the 2.5 billion euros ($3.3 billion) sale of ten-year bonds at an average yield of 6.98 percent. That's lower than the 7.56 percent it had to pay at an equivalent auction last month, when investor concerns over the ability of the country to service its massive debts became particularly acute.
However, the country's borrowing rate on the key 10-year bond remains uncomfortably close to the 7 percent level widely considered to be unsustainable in the long run. Greece, Ireland and Portugal all had to request financial bailouts after their 10-year bond yields pushed above 7 percent. In the secondary markets, Italy's yield continues to hover around the 7 percent mark.
Markets had grown fearful over the past few months that Italy will find it difficult to pay off its massive debts, which stand at around 1.9 trillion euros ($2.5 trillion). Next year alone, Italy has some 330 billion euros ($431 billion) of debt to refinance.
Italy, which is the eurozone's third-largest economy, also sold 2.54 billion euros ($3.3 billion) of 3 year bonds at an average interest rate of 5.62 percent, far lower than the 7.89 percent rate it had to pay last month. It also raised 803 million euro ($1.05 billion) in the 7-year auction at a rate of 7.42 percent and 1.18 billion euro ($1.54 billion) in nine-year bonds at a yield of 6.7 percent.
Thursday's results come a day after Italy raised 10.7 billion euros ($14 billion) in a pair of auctions, again at sharply lower rates than those it was forced to pay just a month ago.
The sharp decline in Italy's borrowing costs over the past couple of days suggests that commercial banks from the 17 countries that use the euro may have diverted some money they tapped from emergency loans from the European Central Bank last week to buy the bonds of heavily indebted governments.
It may also suggest rising investor confidence in Italy's recent efforts to reduce its long-term debt through a variety of austerity measures.
Monti's technocratic government got parliamentary approval last week for more spending cuts and tax increases intended to save the country from financial disaster. One of the most controversial aspects of the austerity package is reform of Italy's bloated pension system.
© Copyright 2015 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.