Italy forced to pay high rates in bond issue

MILAN, July 26, 2011 (AFP) - The Italian treasury was forced to pay increased rates for a nine-billion-euro ($13 billion) bond issue on Tuesday, as Italy's economy continues to feel the pressure on financial markets.

The treasury issued 7.5 billion euros in six-month bonds at a fixed yield or rate of 2.269 percent compared to 1.988 percent for the last similar operation.

The treasury also raised 1.5 billion euros in two-year bonds at 4.038 percent compared to 3.219 percent previously, indicating investor concerns.

The rates were at their highest level since the financial crisis in 2008.

"You can really feel that not everything is settled. The market is still very nervous. There are quite a few questions," said Jean-Francois Robin, a bond market expert with French investment bank Natixis.

Stocks were also down in Milan where the fall in bank shares weighed down the benchmark FTSE Mib index, which eased 0.58 percent in morning trading.

Bond yields -- the rate of return demanded by investors -- fell in some of the more vulnerable eurozone states on Thursday and Friday following the announcement of a new bailout plan for Greece at a European summit in Brussels.

But uncertainty returned to the markets on Monday and yields rose back up.

Italy has been a target on the markets because it has one of the highest public debt levels in the world and one of the lowest growth rates in Europe.

Earlier this month, Parliament approved a sweeping budget austerity plan aimed at reducing Italy's budget deficit to just 0.2 percent of output by 2014.

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