Italy survives another bond test

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Italy survives another bond test

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Italy’s medium term borrowing costs have risen to their highest since December.

The amount of interest it had to offer on government bonds maturing in three years time went up to 2.48 percent from 2.3 percent last month.

After Fitch cut Italy’s credit rating, the auction was another test of investors’ confidence in the country’s fiscal future following inconclusive elections which left political stalemate and doubt over the reforms needed to spur growth and cut debt.

Italy did nevertheless shift almost all the debt it wanted to sell, aided by the European Central Bank’s as-yet untested pledge to buy bonds of struggling eurozone countries that ask for help.

Yields on Italian bonds and those of other indebted euro states such as Spain have fallen from near historic highs since ECB chief Mario Draghi said last July that the central bank would do “whatever it takes” to save the euro.

Analysts said Rome’s borrowing costs would be much higher by now without the ECB’s pledge.

Rating agency Fitch recently cut Italy to BBB+, just three notches above ‘junk’ status, and assigned a negative outlook, citing political uncertainty after the inconclusive election, a deep recession and the country’s rising debt.

Italy’s parliament convenes on March 15 and President Giorgio Napolitano will hold consultations with leaders of all the parties to see if a government can be formed. If it cannot, the country may face fresh elections within a few months.