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Italy survives bond auction after credit downgrade

Friday, July 13, 2012 - 01:44

July 13 - The credit ratings agency Moody's surprised markets by downgrading Italy's government bond rating by two notches to Baa2 and warned it could cut it further. Joel Flynn reports

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Just hours after the credit ratings agency Moody's downgraded Italy, the country passed a tough bond auction test. Costs for three year financing of its borrowing costs fell well below 5 percent. Somewhat surprising, coming just hours after Italy's credit rating was cut to two notches above junk. Lloyds' Alessandro Mercuri says it's difficult to read into the auction too much however. (SOUNDBITE) (English) LLOYDS BANK WBM INTEREST RATE STRATEGIST, ALESSANDRO MERCURI, SAYING: "Well it was short dated paper and there was probably some more persuasion by Italian authorities on Italian banks to buy the paper. The Italian economy is underlying strong fundamentals. This is partly justified. More different is the situation with long dated paper which we saw staying at six percent or above after the auction." Still, questions have been raised about Italy's ability to continue to finance itself on the open market in the longterm. That's despite Prime Minister Mario Monti's widely praised efforts to push through much-needed reforms. He's been undermined by persistent worries about Spain's banking problems and concerns about a Greek exit from the euro. Political uncertainty in the country is now growing as former Prime Minister Silvio Berlusconi is suggesting he may stand for office again. (SOUNDBITE) (English) LLOYDS BANK WBM INTEREST RATE STRATEGIST, ALESSANDRO MERCURI, SAYING: "For the time being it's only an hypothesis and in the near term it solidifies the idea that Monti will be able to proceed with reforms at least until early next year, which is a good thing which is a good thing in the near term. But between now and April 2013, many things can happen in the political sphere so we'll have to wait and see. Italy's politics are the largest risk the country currently faces. The danger for the euro zone is that an Italian failure to restructure could drag the rest of the continent down with it. Joel Flynn, Reuters

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Italy survives bond auction after credit downgrade

Friday, July 13, 2012 - 01:44