Bloomberg News

Italy Spared Post-Vote Penalty by Hunger for Yield, Cannata Says

March 08, 2013

Italy was spared a surge in borrowing costs after inconclusive general elections last month because money managers can’t afford to maintain the caution of the last two years, Italian debt agency head Maria Cannata said.

“The market has not over shot or over reacted to, for example, the uncertain political outcome of the Italian election,” Cannata said in a panel discussion on sovereign debt today in Vienna. “Now, after two years of investing massively in a very low yield, this cannot continue for a long time because there is no way with this investment policy to satisfy the customer.”

Italian 10-year bond yields are approaching the biggest decline since September even as the path to forming a government remains unclear. Borrowing costs in Spain and Portugal have also declined as yields in Germany rose. Cannata said obligations to pensioners and insurance customers are pushing money managers to seek greater returns.

Yields on Italy’s 10-year bonds fell 5 basis points to 4.54 percent at 2:25 p.m. in Rome, bringing the decline since March 1 to 25 basis points. That would be the biggest one-week slide since the first week of September, when yields plunged 79 basis points as European Central Bank President Mario Draghi announced his plan for a sovereign-bond backstop program.

Italy is in political limbo as none of the candidates in the four-way election Feb. 24-25 secured a parliamentary majority, and negotiations for a post-vote coalition government have so far been fruitless.

To contact the reporters on this story: Andrew Frye in Rome at afrye@bloomberg.net; Boris Groendahl in Vienna at bgroendahl@bloomberg.net.

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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