Yet another day of choppy trading on the European stock markets. Investors are concerned with Italy and hope it will get a new government soon, boosting shares slightly at mid-day.
Within the space of a week, attention has turned from Greece – which is currently without a government – to Italy, which is trying to form a new one.
“There’s no doubt Italy is the real “sick man” of the eurozone. Italy is only able to help itself. There will be no support from a European rescue package because we don’t have the large amount of money. That’s why the financial markets are waiting for the new area of post-Berlusconi.”
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Investors kept a close eye on Italy’s bond auction on Thursday morning.
Rome sold five billion euros of one-year debt in the auction, which analysts said was better than some expected. But the sale came at a price. And borrowing costs soared again for the eurozone’s third-largest economy.
The yield – or interest – Italy has to pay to sell its debt was just over 6%. That’s the highest level for 14 years and almost double what it was last month.
It was similar story for 10-year debt, which remains at around 7% – the level at which Greece and Ireland had to be bailed out.
“Bond markets continue to be incredibly volatile and very difficult to trade, and the bond markets will continue to send shockwaves into the equity markets. So we are merely having a bit of a pause for breath today at the moment. But certainly there still seems a long way to go in this crisis, which is intensifying almost every hour of the trading day.”
Rome will have to test the market’s appetite for its debt again next week when it auctions up to three billion euros of five-year government bonds.
Bottom line: European shares rose in morning trade as investors hoped Italy will get a new government soon. Rome sold five billion euros of one-year debt in a bond auction but it had to pay a yield of 6% to do so – the highest level it’s paid in 14 years.