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Political hope helps Italian bond yields

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Political hope helps Italian bond yields

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Italy’s borrowing costs have fallen sharply with investors reacting positively to the moves to end its post-election political deadlock.

Even before Enrico Letta received a mandate to form a new government, Rome was easily able to sell 2.5 billion euros worth of government bonds maturing in two years time at an auction.

The amount of interest it had to offer was down to 1.17 percent – the lowest level since European Monetary Union in 1999 and much lower than the 1.75 percent it paid at a similar sale one month ago.

It was the same story for Italian 10-year government bonds which on Tuesday were paying interest of below four percent for the first time in more than two years.

Investors are also betting that the European Central Bank will cut interest rates as soon as next week which is also fuelling a hunt for higher yields benefiting Italian and Spanish debt.