Italy Sells Maximum Amount of Securities as 10-Year Yield Falls

Italy sold the maximum amount offered at a sale of five and 10-year debt today as investors shrugged off potential risks to the government’s survival from an eventual conviction of former premier Silvio Berlusconi in a tax-fraud case.

Italy sold 3.75 billion euros ($4.97 billion) of a new 10-year bond maturing in March 2024 at 4.46 percent, down from 4.55 percent when Italy sold similar-maturity debt last month. The Rome-based Treasury also sold 2018 bonds at 3.22 percent, down from 3.47 percent at a June 27 auction.

Investors bid for 1.36 times the amount of five-year debt for sale and for 1.32 times the amount of the 10-year securities, compared with 1.30 and 1.46 at the previous sale, respectively. The sale was probably supported by about 25 billion euros of bond redemptions Aug. 1.

“All in all, both lines were decently bid,” Annalisa Piazza, a fixed-income analyst at Newedge Group in London, said in a note to clients after the sale.

Day of Truth

Investors are waiting for Italy’s highest court to rule on Berlusconi’s appeal of a tax-fraud case involving his Mediaset SpA, which may come as soon as today. A conviction carries a four-year prison sentence and a five-year ban from public office. While the three-time premier probably won’t serve any prison time, an upheld conviction may mark the end of his political career and may exacerbate tensions in Prime Minister Enrico Letta’s coalition.

While Berlusconi has repeatedly said he won’t bring down the government, some of his allies have threatened to pull the plug on Letta’s administration in case of a final conviction.

“We think the odds are against a breakdown of the coalition at this time,” UniCredit economist Loredana Federico wrote in a note to clients yesterday. “This week’s ruling and the successive decision” by the Senate, which will have to vote to end Berlusconi’s mandate as a senator, need to be watched closely’’

Italy’s 10-year bond yield dropped 5 basis points to 4.41 percent at 11:20 a.m. in Rome, pushing the difference with comparable-maturing German Bunds to 275 basis points.

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