No cheap funds for Italy as Greek tension reaches beyond borders

Investors are not in mood to lend Cheap as tensions in Greece keep them at bay, demanding higher return for funding.

Investors after letting several countries to lend at negative rates earlier this year amid ECB tapering, using caution since prospect of deflation in Euro zone has decreased dramatically.

• Italy today auctioned around € 2.9 billion worth of 10 year bond, which were sold at average yield of 2.35%, up from 1.83% seen in last auction. This stands as the highest borrowing cost since September last year.

• Italy also auctioned about €1.5 billion worth of 5 year bonds, which were sold at an average yield of 1.25%, higher that 0.85% it paid in last auctions.

Demand was higher for shorter term bonds while uncertainty related to Greece and inflation outlook over the next few quarters resulted in lacklustre demand for longer term.

• Demand of 5 year bond as measured by bid to cover ratio was at 1.62, while 10 year saw demand slip to 1.35.

 Borrowing costs are likely to remain elevated even in the shorter end, unless nerves gets settled after Greek crisis resolves.

Greek negotiation as of now on a devastating path, which if left unchecked might threaten Euro area integrity.

Euro is currently trading at 1.117 against dollar.