Italy cleared its first major hurdle since its inconclusive general election with a government bond sale, but borrowing costs hit their highest level since October as the country's current political paralysis increased the riskiness of its debt.
Financial markets in Europe stabilised following the results, with investors reassured that Italy at least managed to sell the maximum amount of debt that it wanted to and yields were still lower than some market participants had feared.
Still, analysts expect volatility and higher yields to prevail in eurozone bond markets at least until Italy's political stalemate is ended. The latest rise in market tensions follows several months of relative calm in Italian and other weaker eurozone debt markets since the European Central Bank said it was prepared to buy bonds in order to keep a lid on funding costs.
While yields on Italian bonds remain comfortably below the euro era highs hit in November 2011, delays in resolving the political impasse could test the patience of many overseas investors who had readily bought Italian bonds in recent months. Some analysts say the political uncertainty could prompt some non-resident investors to turn their backs on Italian debt, at least for the time being.
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© Wall Street Journal
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