Italy’s Borrowing Costs Rise at Bond Auction After Downgrade

By Chiara Vasarri - Mar 13, 2013 2:39 PM GMT+0200

Bloomberg

Italian borrowing costs rose in the first bond auction since a credit rating downgrade last week that highlighted the economic risks of the country’s current political stalemate.

The Treasury in Rome today sold 3.32 billion euros of a 2015 note at 2.48 percent, up from the 2.3 percent paid Feb. 13 and the highest since December. The Treasury also managed to sell longer-term debt, placing 2 billion euros of securities maturing in 2028 at 4.9 percent compared with 4.805 percent when the same bonds were sold via banks on Jan. 15.

Investors bid 1.28 times the amount of three-year bonds offered, down from 1.37 times last month. The Treasury also sold a total of 1.67 billion euros of 2017 and 2018 floating bonds to yield respectively 2.95 and 3.03 percent. All together, Italy sold 6.99 billion euros of debt, less than the 7.25 billion euros maximum target.

Fitch Ratings lowered Italy one level to BBB+ on March 8, saying that inconclusive parliamentary elections in February threatened the government’s ability to respond to a deepening recession and the European debt crisis.

“The evolution of market sentiment on Italy will depend crucially on how Italian politicians manage the political crisis and market expectations of Italy’s credibility around fiscal consolidation and structural reform,” economists at Barclays including Fabio Fois wrote in a note yesterday.

Italian Democratic Party leader Pier Luigi Bersani, who led in opinion polls throughout the two-month campaign, failed to gain control of parliament in the Feb. 24-25 vote as former Prime Minister Silvio Berlusconi’s bloc and comedian Beppe Grillo’s party each won blocking minorities in the Senate.

“As of now, we would attach equal probabilities to either a technocratic government or a new round of elections,” HSBC Holdings Plc European Economist Matteo Cominetta said in a note to clients yesterday. “Monti would be in charge until a new government is formed but markets may become jittery before that.”

Italy’s 10-year bond yield rose 8 basis points to 4.69 percent after the sale at 1:35 p.m. in Rome. Today’s sale comes after the Treasury yesterday sold 7.75 billion euros of one-year bills at the highest rate since December.

To contact the reporter on this story: Chiara Vasarri in rome at cvasarri@bloomberg.net

To contact the editor responsible for this story: Jerrold Colten at jcolten@bloomberg.net