By Eric J. Lyman
ROME, March 12 (Xinhua) -- Investor interests in Italian bonds recoiled Monday after U.S.-based ratings agency Fitch downgraded Italy's credit rating, another bad news for the country where the number of people suffering economically reached an all-time high.
The Fitch downgrading sent ripples across the eurozone and beyond. Bonds in Germany, seen as the eurozone's safe haven, saw yields fall.
Italy's benchmark 10-year bond, meanwhile, saw yields jump in trading on secondary markets, though they settled down later in the day to close a little less than 1 percent higher at 4.64 percent.
Bank stocks on the Italian stock exchange fell sharply as the companies were most likely to be hurt by the downgrade. But the market as a whole more or less shrugged off the news as the exchange's 40-stock blue chip index closed only 0.7 percent lower.
Additionally, Italy's national statistics institute ISTAT reported Monday that more than 7 million out of its total population of 61.2 million are living under financial "crisis" conditions, while the country's already weak gross domestic product (GDP) has until now contracted by 1 percent, following a 2.4-percent drop in 2012.
But analysts warned that investors have grown complacent about Italy's economic prospects despite the negative news about Italy's economy.
"The markets reacted to the latest news, but not nearly as badly as one would expect," said Antonello Paternoster, an economist and author associated with the University of Rome. "By all accounts, the reaction should be stronger."
Paternoster's remarks were echoed by Davis Schnautz, a strategist with Commerzbank in New York.
"The market seems fairly OK with the downgrade; they [Italian bonds] have shown quite a lot of resilience," Schnautz said.
It was only 15 months ago that Italy was on the brink of falling victim to the European debt crisis. Investors were fleeing Italy, driving yields on the 10-year bonds to an unsustainable 7.5 percent, and plunging the Italian Stock Exchange to new lows.
The fears of an Italian default spread across the 17-nation euro zone and forced then Prime Minister Silvio Berlusconi to resign in November 2011.
Technocrat Mario Monti, who replaced Berlusconi as the premier, helped assuage investor fears and pay off the debts, but he did so with unpopular austerity policies that were rebuffed in last month's national election. Monti finished a distant fourth in the vote, garnering just 10 percent of the popular vote.
Fitch's downgrading of Italian debt to BBB-plus with a negative outlook was based in part on the political uncertainties of the poll. Pre-election favorite Pier Luigi Bersani, Berlusconi, and comedian Beppe Grillo each finished with a large block of votes, but neither of them gained a majority in the Senate.
The impasse is unlikely to clear up itself in the near future, according to Schnautz and other analysts.
"We have no guidance on how the situation will evolve over the coming weeks, months, or perhaps even quarters," Schnautz said.
"It is not the time to expect structural reforms in Italy," he said.
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