Italy's borrowing costs surged at a bond auction on Wednesday as the inconclusive election results led to concerns that political instability could derail the country's efforts to tackle its huge debt and help the economy out of a recession.
The Rome-based Treasury sold EUR 4 billion of 10-year bonds, in line with the target set for the sale, which saw the cost of borrowing soar to a four-month high despite strong demand.
The yield on the May 2023 bond rose to 4.83 percent from 4.17 percent fetched at a January 30 sale. The yield is the highest since October last year. The bid-to-cover ratio, which reflects investor demand, climbed to 1.65 from 1.32.
The agency also sold EUR 2.5 billion of 5-year bonds, matching the maximum target set for the sale. The November 2017 bond fetched a yield of 3.59 percent, which was much higher than the 2.94 percent paid on January 30. The demand was 1.61 times the offer compared to 1.30 times at the previous sale.
Early results of the Italian parliamentary elections showed that no single party or coalition has secured enough seats to form a government on their own.
The center-left Democratic Party led by Pier Luigi Bersani was slightly ahead in the Lower House, while the center-right coalition led by former Prime Minister Silvio Berlusconi was leading in the Senate.
The country's short-term funding costs also rose this week after the election results. The yield on the 6-month paper rose to 1.237 percent from 0.731 percent at an auction yesterday.
The Italian benchmark 10-year yield is hovering above the 4.80 percent in the secondary market.
Yesterday, Moody's Investor Service said that the inconclusive election results raises the possibility of new elections, which could prolong the stalemate. The rating agency warned that it could downgrade the government's credit rating.
by RTT Staff Writer
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