November 14, 2012 / 11:35 AM / 5 years ago

UPDATE 1-Italy's three-year debt costs lowest since Oct. 2010

(Adds analyst's comment, details)

By Francesca Landini

MILAN, Nov 14 (Reuters) - Italy's three-year borrowing costs fell to their lowest in two years on Wednesday at an auction which brought Rome's challenging borrowing plan for this year close to completion.

It paid a yield of 2.64 percent to sell a BTP bond maturing in July 2015, the lowest on three-year paper since October 2010, before Italy was drawn into the euro zone debt crisis.

After edging up to 2.86 percent at a similar sale one month ago, the yield resumed its downward trend on Wednesday as investors shrugged off recent jitters about Greece's ability to meet targets set under its bailout and secure further aid.

"The resilience of Italian debt to the recent deterioration in market sentiment is quite remarkable and stems entirely from the signalling effect of the European Central Bank's new bond-buying programme," said Nicholas Spiro, Managing Director at Spiro Sovereign Strategy.

"A year ago, Italian yields were a proxy for perceived risk in the euro zone. Now, Italian debt is increasingly viewed as an attractive, albeit risky, buying opportunity."

Italian borrowing costs began their fall when ECB chief Mario Draghi pledged in July to do whatever it took to save the euro, and later said the bank would buy unlimited quantities of bonds for states provided they requested conditional help.

The take-up by Italian investors of a whopping 18 billion euros of four-year inflation-linked bonds in October also eased concerns about whether the euro zone's third-biggest economy could support its massive 2 trillion euros of debt.

On Wednesday, Rome sold the top planned amount of 3.5 billion euros for the three-year bond. The issue attracted bids worth 1.5 times the amount offered, compared with 1.67 times in October and a 2012 average of 1.84 times.

The Treasury also sold 11-year debt and a 17-year bond it no longer issues on a regular basis, taking the total raised to 5 billion euros ($6.36 billion).

Wednesday's debt sales helped Italy complete roughly 95 percent of its 465 billion euro borrowing target for this year, leaving it with around 25 billion euros more to raise before year-end, according to Reuters calculations. ($1 = 0.7867 euros) (Additional reporting by Milan and London bond desk)

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