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Italy's Borrowing Costs Fall To Lowest Since 2010


The cost of borrowing of 10-year Italian bonds declined to the lowest since late 2010 at an auction on Monday as the nation's debt gained traction after the formation of the new coalition government.

The treasury sold EUR 3 billion of 10-year bonds at an average yield of 3.94 percent, the lowest since October 2010. The cost at the prior auction on March 27 was 4.66 percent.

Demand for the securities increased to 1.42 times the issue size compared to 1.33 last month.

The treasury also raised EUR 3 billion from 5-year bond issue today. The funding cost eased notably to 2.84 percent from 3.65 percent at a similar auction in March. The bid-to-cover ratio rose to 1.36 from 1.22.

Expectations that a new government will be formed by Enrico Letta with the support of centre-right People of Liberty party, helped Italy raise EUR 8 billion last week by way of a T-bill issue at a record low yield.

Enrico Letta, Deputy Secretary of the center-left Democratic Party, was sworn in as Prime Minister on Sunday. The formation of a 21-member coalition government has ended the political deadlock that began since the inconclusive election in February.

Moreover, markets expect a positive move from the European Central Bank this week. The central bank is expected to cut the key rate by a quarter point to 0.50 percent at its next meeting on May 2.

ECB President Mario Draghi hinted after April's rate setting meeting that the bank will maintain low interest rates in the coming months as the economic weakness in the euro area has extended into the early part of the year.

by RTTNews Staff Writer

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