By Lisa Jucca
MILAN, April 26 Italy's six-month debt costs
fell to a record low at an auction on Friday as investors
expected prime minister-designate Enrico Letta to bring together
rival parties and quickly form a government.
Analysts also said expectations of an interest rate cut in
the euro zone and the current hunt for returns were also helping
to drive down Italian borrowing costs.
"The fall in yields is impressive. Beyond expectations for a
rate cut, that are in any case offering support, markets are
confident that Italy is going to form a government," said Sergio
Capaldi, an analyst at Intesa Sanpaolo.
Rome sold 8 billion euros ($10.4 billion) of bills maturing
in October at 0.503 percent, down from the 0.83 percent the
treasury paid at a similar sale one month ago. This was the
lowest level for Italian six-month borrowing costs since the
introduction of the euro. Italian yields in the lira era were
also much higher.
However, the bid-to-cover ratio - a gauge of investor demand
- fell to 1.40 from 1.64 previously.
Italy has been in a political limbo since inconclusive
elections at the end of February led to a parliamentary split
between three main political forces.
Moderate centre-left politician Letta is attempting to end a
two-month political gridlock by forming a broad coalition
government. He said early-stage talks to form a government were
"encouraging", but problems remained in reaching a deal with the
Silvio Berlusconi-led centre-right.
Although viewed by investors as a better prospect than snap
elections, such a government could turn out to be fragile given
the diverse composition of the political base expected to
"The political situation in Italy remains extremely fluid.
Italy's next government will be a booby-trapped one from the
outset, with all sorts of potential triggers to undermine it and
cause its eventual collapse," said Dr Nicholas Spiro,
Managing Director at Spiro Sovereign Strategy.
"Although it will have a solid majority in parliament, the
government is likely to be riven by conflicts and permanently
weakened by the prospect of an early election.
On Monday the treasury will offer up to 6 billion euros of
five- and 10-year bonds in the last debt sale scheduled for