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Italy Sells $8.5 Billion at Bond Sale as Demand Increases

Italy Borrowing Costs Jump to Four-Month High Amid Vote Concerns
Italy’s borrowing costs jumped at an auction of bonds today as inconclusive elections triggered renewed concern Europe’s debt crisis may deepen. Photographer: Filippo Monteforte/AFP via Getty Images

Italy managed to sell the maximum 6.5 billion euros ($8.5 billion) at a bond auction today as the country’s inconclusive elections forced the Treasury to offer higher yields, fueling an increase in demand for the debt.

The Treasury in Rome today sold 4 billion euros of a new 10-year bond due 2023 at 4.83 percent, up from 4.17 percent at an auction of similar-maturity debt on Jan. 30 and the highest since Oct. 30. It also sold 2.5 billion euros of bonds due in 2017 at 3.59 percent compared with 2.94 percent last month.

Investors bid for 1.65 times the amount of the 10-year debt offered, up from 1.32 times Jan. 30, and for 1.61 times the amount of the five-year bonds compared with 1.30 last month.

“Demand for both lines was relatively solid, probably led by domestic accounts who took advantage of higher yields,” Annalisa Piazza, a fixed-income analyst at Newedge Group in London, said by e-mail. “We rule out foreign accounts have played a major role at today’s auction as political risks remain high.’

This week’s vote produced a hung parliament, with comedian Beppe Grillo’s anti-austerity movement winning more than 25 percent of the popular vote, creating the risk of another election later this year. The outcome raises the chance for prolonged uncertainty, putting Italy’s sovereign credit rating at risk of a downgrade, Moody’s Investors Service said today.

New Election?

President Giorgio Napolitano may be forced to call new elections if the coalition led by Democratic Party leader Pier Luigi Bersani, who won the Chamber of Deputies by a thin margin, fails to form a government.

Ten-year bond yields surged the most in 14 months yesterday amid rising political concerns. Italy’s 10-year yield dropped 7 basis points to 4.83 percent at 2:10 p.m. in Rome. The yield difference with Germany narrowed 6 basis points today to 339 after jumping 51 basis points yesterday.

“A minority government or an unstable government until there are new elections a few months from now means that investors might short Italian debt, spreads may keep rising and the shield that’s supposed to be there isn’t there,” Nouriel Roubini, the New York University professor who predicted the 2008 financial crisis, said in an interview at a Doverie conference in the Bulgarian capital of Sofia. “That could create a vicious circle.”

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