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Political uncertainty hits Italian bonds

Political uncertainty hits Italian bonds
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Worries over Italy’s fragile ruling coalition government and Rome’s plans to issue more debt this year are keeping the country’s borrowing costs high.

Allies of former prime minister Silvio Berlusconi are threatened to topple the government if he is expelled from parliament.

On its benchmark 10-year government bonds, the amount of interest Italy is having to offer is now above Spain’s for the first time in 18 months.

Italy’s bond yields stayed the same while Spain’s dropped slightly as Madrid reducing the size of its bond auctions for the rest of the year.

By contrast Italy’s Treasury wants to sell an additional 18 billion euros worth of bonds this year. That would raise the ceiling on this year’s net debt issuance to 98 billion euros from 80 billion,

That highlights the difficulty the government is having in reining in public spending.

The higher issuance will lift Italy’s massive public debt, already targeted at 130 percent of output this year, among the highest in the eurozone.

In addition there are worries in the financial markets about the capitalisation of Italy’s banks ahead of a major health check of all eurozone lenders by the European Central Bank in the coming months.

Rome sold 11.5 billion euros of treasury bills at its highest rate in over nine months, ahead of a tripartite bond auction on Thursday which aims to raise 7.5 billion euros.