Italy bond sale eases market pressure after rating cut

Market jitters over Italy eased on Friday after a successful bond auction despite a ratings downgrade by Moody's, which warned that short-term economic prospects were worse and political risk had increased.

The Italian Treasury raised 3.5 billion euros ($4.3 billion) in three-year bonds at a rate of 4.65 percent from 5.30 percent last month.

The rate on bonds due in 2019 however rose to 5.58 percent from 4.30 percent in March in the sale, which raised the maximum target of 5.25 billion euros.

The auction brought Italy's borrowing costs on the secondary debt market below a crucial 6.0-percent threshold for 10-year government bonds.

The Milan stock exchange also moved towards parity, with the main index showing a dip of 0.08 percent after falling sharply earlier in the session.

Moody's cut Italy's rating overnight by two notches, citing the knock-on effects of a possible Greek exit from the eurozone and Spain's banking woes.

As it reduced the rating to Baa2 from A3, Moody's said Italy was "more likely to experience a further sharp increase in its funding costs or the loss of market access" for borrowing.

"Italy's near-term economic outlook has deteriorated, as manifest in both weaker growth and higher unemployment, which creates risk of failure to meet fiscal consolidation targets," it said.

The move, which left Italy's rating just two notches above junk-bond status, provoked furious reactions from political and business leaders.

"I think our manufacturing country is stronger than the Moody's ratings would have us believe," said Giorgio Squinzi, the head of the main employers' federation, Confindustria.

Economic Development Minister Corrado Passera said the action was "completely unjustified and off the mark."

The European Commission also questioned the "timing" of the downgrade.

"I do think one can legitimately and seriously question the timing of it, whether the timing is appropriate," said commission spokesman Simon O'Connor.

He noted that the downgrade coincided with an "important bond sale" and said Italy's reform agenda over the past few months "has been impressive and it may not be an exaggeration to say it has been unprecedented."

Asked about the downgrade, Japanese Finance Minister Jun Azumi said he could not comment on specific actions by ratings agencies but pointed to the action plan agreed by European Union leaders on June 29.

"Europe can firmly overcome its issues and regain the confidence of the markets," he said.

Analyst Ugo Bertone of the financial news site firstonline.info said the impact would be limited because "there are no foreign buyers any more."

Many foreign banks and investors have reduced exposure to Italian sovereign debt risk while domestic lenders have increased it using cheap ECB loans.

Nicholas Spiro, managing director at Spiro Sovereign Strategy, told Dow Jones Newsires: "Once again, the Treasury was able to get its debt out the door which, right now, is the overriding priority.

"The concession, however, is still hefty and reflects the increasing risks in Italy," he said.

Moody's also underlined Italy's strengths like a primary budget surplus -- when revenues are set against spending before interest payments on the total debt, a diverse economy and a commitment to reforms.

But it cautioned that political risk was increasing ahead of a general election expected in April 2013 where Prime Minister Mario Monti, who leads a cabinet of technocrats, has said he will step down.

Former prime minister Silvio Berlusconi, who resigned in November 2011 following a parliamentary revolt and financial market panic, has meanwhile signalled he wants to return to the fray as candidate for premier.

Moody's noted that any EU bailout mechanism would be stretched to breaking point should Rome require emergency funding of its own.

Monti has said Italy is not planning to resort to EU assistance to help lower its borrowing costs but has not excluded the possibility in the future.

Moody's also said it expected Italy's economy to contract by 2.0 percent this year, "which will put further pressure on the country's ability to meet its fiscal targets", which were already scaled back in April.

The government's current forecast for 2012 is a 1.2-percent contraction.

Fellow eurozone struggler Spain has also been under pressure as the feel-good momentum of an EU plan to stabilise its stricken banks faded with news the lenders were even more dependent on the European Central Bank.

The Bank of Spain said ECB loans to the country's banks hit a record 337.2 billion euros ($411 billion) in June, as they were finding it more difficult to raise money on the financial markets.

Loading...

Editor’s note:Yahoo Philippines encourages responsible comments that add dimension to the discussion. No bashing or hate speech, please. You can express your opinion without slamming others or making derogatory remarks.

  • High spirits battle: Asia tycoons vie for cognac maker Louis Royer

    * Louis Royer valued at about $150 mln - sources * Suntory selling cognac maker as part of portfolio reshuffle * Asia cognac demand seen rising 13 pct in 2015-19 -Euromonitor (Adds graphic link) By Denny Thomas and Khettiya Jittapong HONG KONG/BANGKOK, May 30 (Reuters) - Thai billionaire Charoen Sirivadhanabhakdi is considering buying cognac maker Louis Royer, people familiar with the matter said, potentially locking horns with a Philippine tycoon for the French firm amid a forecast …

  • OIC asked to complete review of peace pact with MNLF
    OIC asked to complete review of peace pact with MNLF

    The Philippine government is asking the 57-nation Organization of Islamic Cooperation (OIC) to finally complete the tripartite review process of the implementation of the 1996 peace agreement with the Moro National Liberation Front (MNLF). The review – snagged  for several years as government had its hands full with the peace process with rival faction Moro Islamic Liberation Front (MILF) – tackles how the 1996 peace pact with the MNLF has been implemented and centers on the three remaining …

  • Alleged Binay dummies appear in Senate probe
    Alleged Binay dummies appear in Senate probe

    Eight of the resource persons ordered arrested by the Senate finally attended the 21st public hearing of the Senate Blue Ribbon subcommittee into the alleged anomalies involving Vice President Jejomar Binay, but the proceedings turned out to be a review of matters previously presented. For over three hours, the subcommittee heard presentations regarding the alleged hidden assets of Binay and the issue regarding the supposed P200 million in kickbacks he received from a deal between the Boy …

  • DOJ wraps up Mamasapano probe
    DOJ wraps up Mamasapano probe

    The Department of Justice (DOJ) is wrapping up its investigation into the “massacre” of 44 members of the Philippine National Police Special Action Force (PNP-SAF) in Mamasapano, Maguindanao last Jan. 25. A joint team of prosecutors and NBI (National Bureau of Investigation) investigators is about to finish the second part,” Justice Secretary Leila de Lima has told congressmen. She was responding to questions raised by former senior police officer and now Rep. Samuel Pagdilao of party-list …

  • APEC meet in Bataan seen to boost tourism
    APEC meet in Bataan seen to boost tourism

    BALANGA CITY, Bataan – More than 2,000 delegates of the Asia-Pacific Economic Cooperation (APEC) and international media outfits are expected to enjoy the splendid coastline of Bagac town, which faces the West Philippine Sea, as they converge for a workshop in this province next month. …

  • DOST opens P54-M research facility
    DOST opens P54-M research facility

    A P54-million research and development facility of the Department of Science and Technology (DOST) was recently opened in Bicutan, Taguig for scientists and researchers to develop technology and techniques to allow Filipino fashion and clothing designers and manufacturers to produce more mainstream products from local, tropical fabrics like piña, banana and abaca. Science Secretary Mario Montejo said the Innovation Center for Yarns and Textiles (ICYT) is the DOST’s flagship effort at reviving …

  • DFA worried about alleged violations of convicted Pinoys’ rights
    DFA worried about alleged violations of convicted Pinoys’ rights

    Philippine embassy officials in Doha have raised their concern with Qatari authorities over coercion and human rights violations in the alleged forcing of three Filipino workers convicted of spying to provide information and confess to the crime. Speaking to reporters, Department of Foreign Affairs (DFA) spokesman Charles Jose yesterday said the embassy has raised the matter during several high-level meetings with Qatari officials and the national human rights committee in Qatar. “Our embassy …

  • US affirms ‘ironclad’ promise to defend Phl
    US affirms ‘ironclad’ promise to defend Phl

    US Defense Secretary Ashton Carter told his Philippine counterpart on Wednesday that Washington’s pledge to defend the Pacific nation remains “ironclad” and called for an end to land reclamation in the South China Sea, officials said. In talks in Hawaii with Voltaire Gazmin, Philippine secretary of national defense, the Pentagon chief “reaffirmed” the strong ties between the two countries and discussed territorial disputes in the contested waters of the South China Sea, where Beijing has been …

POLL

Should Aquino be held accountable over the Mamasapano operations?

Loading...
Poll Choice Options