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Italy has paid the price for its latest political crisis as its borrowing costs rose to their highest in four months.

The test came on Wednesday at the first government bond auction since an election that raises the prospect of prolonged political instability.

The treasury was able to sell the four billion euros worth of bonds maturing in 10-years time that it wanted but the amount of interest investors demanded to buy them jumped to 4.83 percent – a level not seen since last October.

Italy also issued 2.5 billion euros of a five-year bond on Wednesday, paying a yield of 3.59 percent, up from 2.94 percent one month ago.

There were signs most of the buyers were Italian as foreign investors had stayed away.

Financial analyst Antonio Landolfi said: “Actually, what the international markets want is a degree of governance, even if only in the short term, to be able to respond to the remaining negative trends that seem to be hanging over the markets.”

The fact that the bond auction went smoothly meant investors were relieved, so there was no repeat of Tuesday’s dramatic stock market falls.

But the possibility of new elections, which would prolong the political uncertainty, undermined Italy’s reputation even further with the credit rating agencies which warn Rome faces more downgrades in the future.

Aware of a bumpy road ahead, the Italian treasury had taken advantage of a benign market environment at the beginning of this year to cover more than 20 percent of its total 2013 refunding needs.

Copyright © 2014 euronews

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