Italy Rates Rise in Auction on Vote Concern, Downgrade

Italian borrowing costs rose today in the first auction since Fitch Ratings downgraded the nation, saying inconclusive elections threatened its ability to respond to the fourth recession since 2001.

The Rome-based Treasury auctioned 7.75 billion euros ($10.1 billion) of one-year bills today at 1.28 percent, the highest since December and up from 1.094 percent at an auction of similar maturity debt Feb. 12. Attracted by higher rates, investors bid for 1.50 times the amount offered, up from 1.38 times last month. Today’s sale was probably helped by 8.69 billion euros in bill redemptions this week.

Fitch lowered Italy’s credit rating one level to BBB+ on March 8, saying inconclusive parliamentary elections in February threatened the government’s ability to respond to a recession and the European debt crisis. Italy’s bonds have trailed their Spanish counterparts since the parliamentary elections on Feb. 24-25 failed to produce a clear winner, threatening outgoing Prime Minister Mario Monti’s austerity program.

“The political stalemate, supply pressure and the recent downgrade by Fitch continue to keep Italy in the spotlight,” UniCredit strategist Elia Lattuga wrote in a note yesterday.

Italy’s 10-year bond yield dropped 3 basis points to 4.6 percent after the sale at 11:08 a.m. in Rome. Italy returns to the market tomorrow with the sale of longer maturity bonds.

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