Italy faces bond sale test after Moody's downgrade

Moody's Jewelry Neon Sign (Photo credit: Lost Tulsa)

comItaly's auction of up to 5.25 billion euros in bonds on Friday looks altogether more testing after Moody's cut its rating on the euro zone's third-largest economy to just two notches above junk status.

The agency downgraded Italy's sovereign rating by two notches to 'Baa2', citing rising risks of higher funding costs and a loss of market access. It warned it may cut it further. The unexpected move weighed negatively on Italian bonds in early trade but a new three-year bond on sale on Friday still traded at levels which pointed to a fall in the cost of borrowing from a month ago. "The (Italian government bond) futures have opened sharply lower, we have a tough day ahead of us," an Italian bond trader said. "The negative outlook is particularly worrying." Ten-year Italian government bond yields rose 13 basis points to 6.04 percent, while five-year yields were up 15 bps to 5.55 percent in response to the Moody's action. The Treasury is offering a new July 2015 bond carrying a 4.5 percent coupon and new tranches of three bonds due in 2019, 2022 and 2023 that are no longer issued on a regular basis. ... Continue to read.

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