28 Feb 2013

Cost of borrowing now higher for Italy

6:32 am on 28 February 2013

Italy's borrowing costs rose sharply at an auction on Wednesday, in the first test of its ability to borrow money long-term at affordable rates after an inconclusive election result.

New 10-year government bonds were sold at a yield of 4.83%, up from 4.17% at its last sale in January.

The BBC reports the yield provides an indication of the yearly interest rate Rome would have to pay to borrow new money.

The offering was worth 6.5 billion euros in 10- and five-year bonds and all were sold.

The new five-year bond was sold at a yield of 3.59%, up from 2.94% in January.

Higher borrowing costs had been expected, as the yields rose on Tuesday after the election revealed no clear winner in both houses.

A split parliament is likely to make it harder for one group to push through any plans to revive the economy. Italy's public debt levels stood at 127% of GDP in 2012.

The BBC says borrowing costs are still well below the levels seen in November 2011, when the yield on the 10-year bond reached 7%.

Demand for both bonds was higher than at the previous auction and the markets appeared to take heart from this.