Italy Successfully Sells Treasury Bills - Is That Good?
Italy just auctioned $6.8 billion ($5 billion Euro) of 1-year treasury bills. The auction is considered a success.
But in order to sell the bills, the treasury had to offer a higher interest rate, the highest rate offered in 14 years. The press pretty much reported this as good news, pointing out that European stock markets rallied.
But how is this good news?
If the Italian government had to offer higher interest rates, that only confirms that buyers would not have bought the bills at more "normal" rates, because they consider the bills risky - they want to be paid for taking higher risk.
In addition, the Italian government now has to come up with the money to pay the higher interest rate.
By having greater obligations, the Italian financial picture only looks worse, and any future debt offerings will have to be sold at even higher interest rates. It's starting to look like a kind of death spiral of higher and higher interest rates, unless something changes.
That's not good news.
But in order to sell the bills, the treasury had to offer a higher interest rate, the highest rate offered in 14 years. The press pretty much reported this as good news, pointing out that European stock markets rallied.
But how is this good news?
If the Italian government had to offer higher interest rates, that only confirms that buyers would not have bought the bills at more "normal" rates, because they consider the bills risky - they want to be paid for taking higher risk.
In addition, the Italian government now has to come up with the money to pay the higher interest rate.
By having greater obligations, the Italian financial picture only looks worse, and any future debt offerings will have to be sold at even higher interest rates. It's starting to look like a kind of death spiral of higher and higher interest rates, unless something changes.
That's not good news.
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