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Italy passes debt test


Italy passes debt test


Italy’s borrowing costs fell at its latest auction of short-term government bonds.

That means Rome has passed the first debt test since technocrat Prime Minister Mario Monti said he would leave office early.

The treasury sold 6.5 billion euros worth of one-year bills as planned and paid a yield of 1.46 percent, down from 1.76 percent one month ago.

A sell-off on Monday following Monti’s announcement had pushed yields up.

Analysts said a European Central Bank pledge to buy bonds of vulnerable eurozone countries continues to shield Italian debt, despite the political uncertainty, there.

Monti announced on Saturday his intention to quit as soon as the 2013 budget law is approved after losing support from Silvio Berlusconi’s centre-right PDL party, the largest in the Italian parliament.

The announced early exit of Monti sparked investors’ concern that Italy may stray from a path of economic reforms in the aftermath of general elections now scheduled to take place in February.

However strategists see the ECB bond-buying scheme as an effective counterweight to Italian political risk, for now, and expect Rome will meet its borrowing target for this year with a bond auction on Thursday.

“With the ECB’s fiscal backstop in place, investors are much less concerned about Italian debt,” said Nicholas Spiro of Spiro Sovereign Strategy.

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