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Italy meets sound demand of gov't bonds at higher borrowing costs

Xinhua,May 31, 2018 Adjust font size:

by Alessandra Cardone

ROME, May 30 (Xinhua) -- Italy placed government bonds worth 5.57 billion euros (6.49 billion U.S. dollars) on Wednesday, but paying much higher rates.

Yields on benchmark ten-year Italian bond (BTP) rose to 3 percent from 1.7 percent in the last auction on April 27, Italian Treasury said. Yields on five-year Italian bond rose from 0.56 percent in April to 2.32 percent. They marked the highest returns since June 2014 and January 2014, respectively.

"The sustained demand has not really come as a surprise, and yet the strong rise in yields and in such a short time -- a little more than one month -- means investors are wary," Nicola Borri from the Economics and Finance Department at Rome's LUISS University told Xinhua.

It signalled investors, although still willing to finance Italy, have not shrug off their concerns over the current political crisis, and its possible effects on the sustainability of the country's huge debt and on its adherence to the eurozone, according to the economist.

Of course, the risks of an "Italexit" or of government default were only addressed in terms of probabilities, the expert explained, "but investors demanding a higher ten-year bond yield means they deem such risks stronger today than just one month ago."

This was bad for Italy in macro-economic terms as well, since the higher the borrowing costs were, the less resources would be available for implementing certain economic or social policies.

"A positive sign is that bond yields on the secondary market for government securities (after hitting 3.2 percent yesterday) did not increase further today," Borri said.

Meanwhile, Milan's FTSE MIB market recovered by some 2.09 percent to 21,797 points at the closure of the trading session on Wednesday, after plunging by 2.65 percent on Tuesday.

The spread between Italian ten-year BTP and benchmark German Bund dropped to 275 basis points. On Tuesday, it exceeded a record high of 320 basis points, and closed at 293 basis points. Enditem

 

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