Italy’s cost of borrowing drops to 1% mark

Italy’s cost of borrowing over six months sank towards 1 per cent at an auction on Monday, the lowest in 17 months, as cheap loans from the European Central Bank fuelled banks’ interest in lending to euro zone governments over the short-term. The auction offered some measure of the progress officials have made in easing the  ahead of a more challenging funding test on Tuesday. “It is a very good result,” said Matteo Regesta, a strategist at BNP Paribas in London. “The dynamics for the 10-year sale are different ... (and) results could be less spectacular at the longer end of the curve, but the test could not come at a better time.” This week’s auctions come just ahead of a second offer of cheap three-year funds for banks from the European Central Bank on Wednesday. The first sale in December turned the tide, at least for a moment, in Europe’s efforts to halt the debt crisis. The cost of financing public debts in Italy, Spain and other countries still in the firing line has fallen in response.  On Monday, the Italian Treasury sold 12.25 billion euros of bills, paying only 1.2 per cent to sell six-month paper -the cheapest since September 2010.  The six-month auction rate stood just below 2 per cent a month ago.