Italy's borrowing costs jump to 12-year high in January

By Antonella Cinelli ROME, Feb 15 (Reuters) - Italy's cost of funding, measuring the average interest rate on new bonds issued, jumped in January to its highest level since a sovereign debt crisis in 2011, indicating the challenges facing the Treasury as it plans to ramp up its borrowing. The cost of funding doubled in January to 3.44% from an average of 1.71% in 2022 and a record low at 0.1% in 2021. This year looks potentially challenging for issuers around the euro zone, where many countries have increased their borrowing plans to tackle the energy crisis, and the European Central Bank is withdrawing its bond-buying support. "Central banks are raising rates, and 'quantitative tightening' will soon start," said Antonio Cesarano, Chief Global Strategist at Intermonte, referring to the fact the ECB will offload sovereign debt from its portfolio at a rate of 15 billion euros a month between March and June. The cost of funding had increased somewhat throughout the euro zone, but Italy, which has proportionally the second highest debt in the currency bloc after Greece, looks particularly exposed. Its debt pile has risen to 2,763 billion euros as of December 2022, up 84 billion euros compared to the end of 2021 - and the end of the ECB's purchases is expected to put peripheral bonds under pressure, including Italy's BTPs. Rome's medium and long-term gross funding needs are seen at 310-320 billion euros this year against 278 billion euros ($297.93 billion) in 2022, based on Treasury estimates. On the positive side, the economic outlook has brightened compared with a couple of months ago, and many investors were expecting yields to be even higher at the start of this year. Italy's 10-year BTP yield is currently above 4% . Last month Rome carried out a syndicated deal and a bond exchange transaction, buying back bonds maturing in the second half of the year. One analyst who asked not to be named said this was a sign the Treasury was keen to taking advantage of market conditions it considered relatively favourable. Cristopher Dembik, head of macro analysis at Saxo Bank, said the situation was still no cause for alarm. "A rate above 5-6% on the 10-year BTP would start to be critical. Below this level we are basically seeing a normalisation process after an abnormal period of very low interest rates," he said. ($1 = 0.9331 euros) <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ ITALY'S COST OF FUNDING ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (additional reporting by Valentina Consiglio, editing by Gavin Jones)