Italy will be able to withstand an increase in borrowing costs for at least a few years as its relatively long debt maturity helps mitigate the effects of record bond yields, the Bank for International Settlements said.
The cost of servicing its debt would rise by just 0.95 percent of gross domestic product next year if 10-year yields stayed at the record 7.48 percent reached last month, the BIS said, citing its own calculations. The “worst-case scenario” would have to persist for three years for the additional costs to exceed 2 percent of output, the bank said.
“Simple simulations of the debt-service costs of the Italian Treasury in different yield curve scenarios suggests that Italy should be able to withstand elevated yields for some time, provided it retains access to the market,” the BIS said in its Quarterly Report.
The average maturity of Italian debt is seven years, according to the BIS. That compares with six years in Portugal and Germany and slightly over seven years in France.
The Italian government bond market is the world’s third largest after Japan and the U.S., with 1.9 trillion euros ($2.54 trillion) in outstanding debt and 1.6 trillion euros in marketable securities, according to the BIS.
Italy’s debt servicing costs will rise to 5.1 percent of GDP in 2012 from 4.2 percent this year, and climb to 5.6 percent in 2013 if 10-year bond yields remain near 7 percent, the employers’ lobby group Confindustria said this month.
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