Thursday 21 September 2017

Italy worst hit as cost of borrowing surges

Peter Flanagan

Peter Flanagan

THE cost of borrowing for so-called "peripheral" euro-area countries surged yesterday, after talks on creating a new government in Italy broke down.

The Italian government was worst hit. Its cost of borrowing over 10 years rose sharply when the Treasury sold €6.91bn of debt at an auction. The yield, or interest rate, on Italian debt due to be repaid in 10 years' time jumped 16.4 basis points to 4.73pc.

Ireland's borrowing costs were higher but did not see the big swing notes elsewhere on the euro fringe. Irish benchmark bond yields rose marginally to 4.18pc.

But Spanish and Greek bonds slid as investors shunned the securities.

German bunds gained, with its 10-year borrowing costs falling to a three-month low, even as European governments vowed the tax on bank accounts to finance Cyprus's aid package won't be a precedent

"It's a combination of the political uncertainty coinciding with an auction that's put Italian bonds under pressure," said Jamie Searle of Citigroup in London.

Spanish bonds were hit after the government said its 2012 budget deficit would be bigger than first estimated after the EU requested tax-claim changes.

Meanwhile, Britain should go to court to stop plans by 11 eurozone countries to tax financial transactions from 2014 because of its impact on Britain, a panel of lawmakers has said. The tax, aimed at making banks pay for taxpayer help they got, will apply globally if a transaction is based on a financial instrument from the 11 participating eurozone countries. (Additional reporting by Bloomberg)

Irish Independent

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