Italian Yields Fall after Downgrade

Borrowing costs decline at Italy’s auction of $6.4 bln of debt after Moody’s cuts bond rating.

Italian borrowing costs fell at an auction hours after Moody’s Investors Service downgraded the country’s bond rating by two levels, citing the worsening political and economic outlook.

Italy sold 3.5 billion euros ($4.3 billion) of three-year bonds, matching a maximum target, and later sold 1.75 billion euros of three longer-dated securities. The Rome-based Treasury sold the 2015 bond at 4.65 percent, down from the 5.3 percent on a similar-maturity bond sold on June 14. Investors bid for 1.73 times the amount offered, up from 1.59 times last month.

‘Right Direction’

“While contagion risks remain on the table, we think that the latest decisions undertaken at the European level and also by Spanish and Greek governments go, if anything, in the right direction of giving more stability to the euro area as a whole,” economists at Barclays Capital including Fabio Fois wrote in a note before the auction.

Rivals in Parliament

The nation’s two main political parties, which have suspended their rivalry to jointly support Monti’s policies, may not be able to win a governing majority in parliament on their own, polls indicate.

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