Italy Yields Rise at Sale as Euro Gains Add to Vote Risk

Italian borrowing costs rose at a bond auction for the first time since October as the euro’s gains against the dollar added to political concerns about the outcome of a general election this month.

The Treasury in Rome today sold 3.45 billion euros ($4.65 billion) of a 2015 note at 2.30 percent, up from the 1.85 percent paid Jan. 11. Investors bid 1.37 times the amount of three-year bonds offered, down from 1.45 times last month. The Treasury also sold longer-term debt, placing 1.75 billion euros of securities maturing in 2026 and 2040.

“The fact that yields have risen from last month can be linked, more than to the looming election, to the strength of the euro, which means reduced growth perspectives and increases the risks for countries such as Italy and Spain that are mired in a recession,” Chiara Manenti, a fixed-income strategist at Intesa Sanpaolo SpA in Milan, said by phone today.

The risk of a hung parliament is also adding to concerns. 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, the Democratic leader may fall short of a majority in the Senate, where the race is more unpredictable as seats are doled out on a regional basis.

Senate Majority

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.”

The auction comes during a blackout period for opinion polls, which was designed to protect voters ahead of the Feb. 24-25 election, making it impossible for Italians to gauge support for their candidates. Five polls published Feb. 8 showed about 30 percent of potential voters remained undecided or planned to abstain.

The Treasury tested again the appetite for long-term debt today after selling a new 15-year benchmark last month. Italy is considering selling a new 30-year bond when market conditions are right, a spokesman for the Finance Ministry 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 after the Treasury yesterday sold 8.5 billion euros of one-year bills at 1.094 percent, up from 0.864 percent at the previous auction of similar-maturity debt Jan. 10.

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