Yields shoot up as Italy sells €4.25-bn debt

Italian bond yields reached their highest level in five months yesterday, as the nation's treasury sold €3.5 billion ($4.4 billion) two-year debt amid growing concerns of a possible Greek exit from the eurozone and the contagion of the debt crisis spreading to other nations.

The new zero-coupon bond maturing in May 2014 was sold at the higher end of the planned range at a yield of 4.037. Last month, the average yield on similar two-year debt was 3.36 per cent that was before the inconclusive election outcome in debt-ridden Greece.

Investor appetite was lower at 1.66 times the offer amount compared with 1.80 times in April.

Italy also sold €750 million of bonds due in 2016 and 2017, also at the top end of the range, to yield 4.39 per cent and 4.6 per cent respectively.

The yields on Italy's 10-year bonds rose to 5.74 per cent on Monday, 7 basis points up or 1.3 per cent, with a spread of 437 basis points compared to German bunds of the same maturity.

Last November, the yields on Italian two-year bonds hit a record high of 7.8 per cent, when the market worries were at its peak on the nation's debt problems. Later, the yields dropped to below 5 per cent in December.