Italy will sell up to six billion euros of five- and 10-year bonds at a somewhat inauspicious time.
Yields rose modestly at shorter-term debt sales on Tuesday and Wednesday with the government wobbling, and the prospect of the Federal Reserve reducing U.S. stimulus has put pressure on peripheral euro zone bond yields more broadly.
However, Italy’s restive coalition managed last night to reach a deal on a deeply unpopular property tax, showing it can still function despite fractures over Silvio Berlusconi’s future. On the secondary market yesterday, yields dipped in anticipation of a deal which will abolish the tax from the beginning of 2014 to be replaced by a “service tax”.
Berlusconi’s centre-right PDL had demanded the housing tax be scrapped as the price for supporting centre-left Prime Minister Enrico Letta, though it will rob the debt-laden state of 4 billion euros a year.
The details of the service tax could yet foment more discord between the parties but for now it’s a bullet dodged. There will also be an increase in gambling taxes and further spending cuts which have yet to be been finalized.