Italian government borrowing costs up on low bond demand

City A.M. Reporter
THE ITALIAN government’s borrowing costs hit three-month highs yesterday as market volatility continued to push up bond yields.

The troubled Eurozone nation paid a yield of 4.55 per cent on its 10 year bonds, raising €2.5bn (£2.1bn).

That rate represents an increase from 4.14 per cent in a similar auction last month.

In the last month alone yields have ranged between 4.08 per cent and 4.9 per cent, indicating the enormous volatility hitting investors currently.

Much of the chaos has come from the Federal Reserve suggesting that it may start reducing the amount of money it prints each month, as a prelude to eventually ending quantitative easing then unwinding the policy when the economy recovers fully.

Although it was intended as a sign the economy is getting better, the discussion of the so-called taper has put investors on edge.

The volatility has caused central banks to row back on those comments. Mario Draghi at the European Central Bank, for instance, has regularly repeated that he will buy the debts of struggling countries if need be, and if they agree to more economic reforms.

Meanwhile the state also raised €2.5bn in a sale of five-year debt, paying investors a yield of 3.47 per cent. Similarly that represents a large rise from three per cent paid previously.