MILAN, March 25 Italy's two-year borrowing costs
were little changed at auction on Monday, with investors
weighing uncertainty over the country's political future against
relief Cyprus agreed a bailout, keeping the euro zone intact.
The treasury sold 2.825 billion euros of two-year
zero-coupon bonds, with a yield of 1.75 percent.
That was the highest level since December 2012 but only
marginally higher than the 1.68 percent Italy paid at an auction
on February 25, hours before inconclusive election results that
triggered a political deadlock that remains unbroken.
The last-ditch bailout signed by Cyprus hours ahead of the
debt sale saved the island's banking system and euro zone
"The impact of the deal on Cyprus is likely to be limited as
the market already bet on a compromise. I expect investors to
focus on the domestic political outlook," Alessandro Giansanti,
fixed-income strategist at ING.
No single party or coalition has won a big enough majority
to govern, increasing the chances that a new election will have
to be held in the next few months.
Despite the political impasse, Italian yields have only
risen moderately over the past month as a pledge by the European
Central Bank to buy the bonds of weaker euro zone countries
continues to shield peripheral debt.
Giansanti said Monday's auction was a bit weak. "The
treasury paid a limited uptick in terms of yield, but ... the
demand was (only) 1.43 (times) the offer," he said.
A month ago the bid-to-cover ratio was 1.65. The treasury
sold 3.825 billion euros of debt, just below the 4 billion that
marked the top of its target range.
Pier Luigi Bersani, leader of the centre-left PD party whose
alliance won a majority in the lower house of parliament but not
in the Senate, is in talks with parties this week to see if he
can form a government.
It is unclear how Bersani could secure a majority in the
The Bank of Italy's deputy director general, Fabio Panetta,
said on Saturday the political stalemate and renewed financial
market turbulence could undermine the country's recovery from
its longest recession in two decades.
On Monday, Italy sold also two inflation-linked BTPei bonds
maturing September 2018 and September 2023 respectively.