Euro Watch: Italy’s Borrowing Costs Rise

The Treasury on Wednesday sold €2 billion, or $3.3 billion, of a 15-year bond it first issued in January, paying a yield of 4.90 percent compared with 4.81 percent at the initial sale.

The Treasury also sold €3.3 billion in three-year bonds at a yield, or interest rate, of 2.48 percent — up from 2.30 percent at a similar sale one month ago.

Demand was weaker than analysts had expected, with bids of 1.28 times the offer amount for both bond issues, and Italian debt yields on the secondary market rose following the sale.

The Treasury nevertheless sold almost all the debt it wanted to sell, aided by the European Central Bank’s as yet untested pledge to buy bonds of struggling euro zone countries that ask for help. Yields on Italian bonds and those of other indebted euro states such as Spain have fallen from near historic highs since the E.C.B. chief, Mario Draghi, said in July that the central bank would do “whatever it takes” to save the euro.

“Without the E.C.B.’s pledge to backstop euro zone peripheral debt markets, post-election instability in Italy would have sent yields surging by now,” said Nicholas Spiro, managing director at Spiro Sovereign Strategy. “However, the strains are showing on Italy’s government bond market, with a further uptick in yields at today’s auction and fairly lackluster demand at that.”

Italian 10-year yields were at 4.69 percent at midday Wednesday, slightly up from levels seen before the debt sale.

The rating agency Fitch cut Italy’s credit rating last Friday to BBB-plus, just three notches above junk status, and assigned a negative outlook, citing political uncertainty after the inconclusive election, a deep recession and the country’s rising debt.

Parliament convenes Friday and President Giorgio Napolitano will hold consultations with leaders of all the parties to see if a government can be formed. If it cannot, the country may face fresh elections within a few months.

Article source: http://www.nytimes.com/2013/03/14/business/global/italys-borrowing-costs-rise.html?partner=rss&emc=rss