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Italy Pays Record Low to Sell Three-Year Debt at Auction

Italian borrowing costs dropped to a record low at a sale of three-year debt today as investors shrug off rising tensions between Premier Enrico Letta and his party chief Matteo Renzi that could cause the collapse of the government.

Italy sold a total 7.5 billion euros ($10.3 billion), matching the maximum target for the sale. The country sold 3.5 billion euros of a three-year note maturing in December 2016 at a record low 1.41 percent compared with 1.51 percent Jan. 13.

Investors bid for 1.43 percent the amount of the 2016 debt sold, up from 1.38 at the previous sale.

’’Markets are likely to react positively to Renzi becoming premier, believing that the pro-reform and straight-talking politician will re-ignite reforms,’’ Wolfango Piccoli, managing director with Teneo Intelligence in London, said in a note before the sale. ’’However, his lack of a popular mandate could complicate his ability to enact reforms.’’

Yesterday Letta, who is under pressure to resign and pave the way for a government led by Renzi, proposed a new policy agenda including tax cuts and an overhaul of the country’s labor market, in a bid to bring his fraying coalition back together. Renzi will clarify his plans at a party meeting scheduled to start at 3:00 p.m. local time in Rome.

At today’s auction the Rome-based Treasury also sold 2.5 billion euros of 2021 notes at 3.02 percent, compared with 3.17 percent Jan. 13. In addition, Italy sold 1.5 billion euros of a 2044 bond to yield 4.59 percent, compared with 4.99 percent when it last sold the debt Nov. 13.

Investors bid for 1.37 times the amount of the 2021 debt sold and that of the 2044 bonds, compared with 1.38 and 1.46 at the previous sales respectively.

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

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