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Italy paid the least since last August to place all of a planned offer of 10-year bonds on Tuesday, firm evidence of an easing of the pressure on the euro zone's third largest economy thanks largely to a flood of European Central Bank money into banks.
Ten-year debt costs fell to 5.5 percent, from 6.08 percent a month ago, adding to hopes that Italy can get through a major refinancing hump in the first four months of the year relatively smoothly.
The ECB's injection in December of almost half a trillion euros into money markets - set to be repeated on Wednesday - has slashed borrowing costs for the euro zone's struggling borrowers but there had been some more doubt about Tuesday's sale.
As ECB funds tend to find their way into shorter-dated government paper, longer-term issues have lagged behind in the rally the bonds of weaker countries such as Italy and Spain have enjoyed after the first ECB three-year tender in December.
Tuesday's 3.75 billion euro 10-year sale was covered 1.4 times, in line with the average. The total sale of 6.25 billion euros of fixed-rate BTP bonds hit the top of the planned range.
"Another wave of positive news for Italy which was one of the riskier countries in terms of supply this year," said ING strategist Alessandro Giansanti.
The heavy funding schedule of the world's fourth-largest sovereign debtor had seemed almost unmanageable at the peak of the debt crisis in November; 10-year auction yields have now fallen 200 basis points from the euro lifetime records hit then.
Tuesday's auction brings Italy's total gross issuance this year to around 46 billion euros, or roughly half of the 90 billion euros of bonds maturing between February and April.
"One of Italy's many challenges this year is to attract sufficient demand for its longer dated bonds. Today's result is a feather in the cap of the Treasury," said Nicholas Spiro at Spiro Sovereign Strategy.
"This is all about sentiment - and right now it's working in Italy's favour."
BTP redemptions and coupon payments worth some 20 billion euros this week have likely supported demand at Tuesday's sale. Another 23 billion euros in Italian zero-coupon and floating-rate bonds also come due this week.
Five-year borrowing costs fell more than one percentage point from a month ago to 4.2 percent at Tuesday's sale. That was the lowest level since May, before Rome was dragged into the line of fire in the debt crisis.
The Italian auction comes in a busy week for euro zone sovereign issuers. German, French and Spanish bond auctions are scheduled in the rest of the week, after a Belgian bond sale on Monday.
But Italy's auction benefited from the positive market momentum ahead of a second - and likely last - longer-term ECB liquidity tender on Wednesday.
Italian banks grabbed 116 billion euros in three-year funds at the first tender in late December -nearly a quarter of the total. They are expected to roughly match previous demand at a new cash offer on Wednesday.
ECB data showed on Monday that Italian and Spanish banks stepped up their purchases of government bonds by record amounts of some 20 billion euros in January.
The prospect of this week's second offer of three-year ECB funds helped drive Italian six-month debt costs to a 17-month low of 1.2 percent at an auction on Monday.