Italy pays higher rates in bond auction

Italy had to pay investors much higher rates of return at a short-term bond auction yesterday, reflecting investor fears an upcoming EU summit may not be able to prevent the debt crisis ensnaring Rome.

The government sold a total of €9 billion worth of six-month bonds at a yield of 2.957 per cent compared to 2.104 per cent at the last similar operation on May 29, the Bank of Italy said. On Tuesday, the Italian Treasury had been forced to pay higher rates on €3.9 billion of a range of zero coupon notes and inflation-indexed bonds set to expire in 2014, 2016 and 2026.

It faces a further confidence test today with a medium to long-term bond session at which it hopes to sell between €3.75 million and €5.5 billion.

After a few days of calm, Italian borrowing costs are back under pressure as financial watchers and investors gear up for a Brussels summit of EU leaders today and tomorrow, which sceptics fear will not offer enough to calm markets.

Tensions remain high between the bloc’s paymaster Germany and other eurozone leaders, with Chancellor Angela Merkel insisting on Tuesday that Berlin would reject the debt-pooling scheme favoured by Italy and France.