Italy’s Borrowing Costs Rise at Sale as Political Concerns Mount

Italian borrowing costs rose at a bond auction for the first time since October, less than two weeks before a general election that is fueling investors concern about political stability in Italy.

The Treasury in Rome today sold 3.45 billion euros of a 2015 note at 2.30 percent, up from the 1.85 percent paid Jan. 11. The Treasury also managed to sell longer-term debt, placing 1.75 billion euros of securities maturing in 2026 and 2040 respectively. Investors bid 2015 1.37 times the amount of three- year bonds offered, down from 1.45 times last month.

Five opinion polls, published before a ban kicked in Feb. 9, indicated Democratic Party leader Pier Luigi Bersani was leading his rival Silvio Berlusconi by an average of 6 percentage points. Still, Bersani may fall short of a majority in the Senate, where the race is more unpredictable as seats are doled out on a regional basis.

Bersani’s bloc “is still on track to win the lower house, but will likely have to strike a deal” with outgoing Prime Minister Mario Monti to control the Senate, Eurasia Group analysts including Wolfango Piccoli said in an e-mailed note yesterday. “In the most probable outcome, Bersani’s coalition and Monti together will have a slim Senate majority.”

Market Appetite

Italy’s 10-year bond yield declined 4 basis points to 4.47 percent at 11:36 a.m. in Rome, leaving the difference with German debt at 280 basis points.

The Treasury tested the appetite for long-term debt today. The Treasury is considering selling a new 30-year bond when market conditions are right, a spokesman said Jan. 16.

Today Italy sold the 2026 and 2040 bonds at 4.55 percent and 5.07 percent respectively. The Treasury also sold 1.43 billion euros of a floating bond due in 2017 to yield 2.55 percent.

The auction comes during the ban on opinion polls, which aims to protect voters ahead of the Feb. 24-25 vote, making it impossible for Italians to gauge support for their candidates.

“The upcoming elections have triggered some profit taking on BTPs,” Elia Lattuga, fixed-income strategists at UniCredit SpA, wrote in a note to investors yesterday. “While we remain positive in a medium-term horizon, we think volatility will likely prevail in the near term.”

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