Yield on Italy Bonds in Auction Highest Since 2008

Italy sold 4.5 billion euros ($6.4 billion) in long-term debt on Thursday in a series of auctions seen as a gauge of market confidence in the country and of the wider euro zone.

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Yields on 5-year debt were 4.93 percent, the highest since 2008, but the bid-to-cover ratio was high at 1.931. 2026-dated debt saw gross yields of 5.90 percent, with a bid-to-cover ratio of 1.487.

Italian 10-year yields ran above 6 percent on Tuesday – the highest since 1999 - as fears that the country's debt burden is unsustainable were exacerbated by divisions between the Prime Minister, Silvio Berlusconi, and the finance minister, Giulio Tremonti.

Standard & Poors and Moody's have both warned about possible downgrades for Italy, but Fitch Ratings said on Wednesday that if implemented, the country's austerity plans - which targets savings of 40 billion euros - could be successful in controlling the country's debt.

The austerity package was passed by the Italian senate on Thursday and is awaiting approval by the house of deputies on Friday.

Italy's debt is currently 120 percent of gross domestic product, and the country needs to refinance more than 100 billion euros worth by the end of September. However, analysts have been encouraged that the government has been able to pare back its borrowing requirement over the past two years.

While the euro zone's sovereign debt crisis has, to date, been limited to smaller economies, worries of a default by Italy – the continent's fourth largest economy and the world's third biggest issuer of government debt – would have wide ranging and severe effects on the regional and global economy, analysts have warned.