Italian government borrowing costs fall despite downgrade

Tim Wallace
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THE ITALIAN government’s borrowing costs dipped back yesterday, after months of uncertainty in debt markets had held bond yields high.

The troubled southern Eurozone state was downgraded by ratings agency Standard and Poor’s earlier in the week, but despite the warning investors bought the debt.

Italy issued €3.39bn (£2.9bn) in three year bonds, borrowing at an interest rate of 2.33 per cent.

This was down from 2.38 per cent a month ago and the lowest rate since May.

And it also raised €1.46bn in 30-year debt, paying 5.19 per cent.

Analysts believe the one-notch downgrade to a triple-B rating is too small so far to have had an impact on the cost of borrowing, as it is still classed as investment grade and so matches the criteria of many investment funds and groups.

But there is still concern more bad news may be on the way for Italy’s government.

“The relatively muted reaction from the market may be because a one-notch downgrade does not put the sovereign’s position in bond indices at risk, although the downgrade does confirm the trend in fundamentals,” said Nomura’s Pooja Kumra.