Italy's two-year borrowing costs fall Italy successfully sold €11.75bn of government debt at auction, hitting the top end of its target range even amid increasing political uncertainty in the wake of Mario Monti's official resignation as prime minister. The Treasury sold €3.25bn of two-year notes at 1.884 per cent, down from 1.923 per cent at the last auction in November. Borrowing costs on the €8.5bn of six-month bills was higher than last month, however, at 0.949 per cent versus 0.919 per cent. The bid-to-cover ratio, a measure of demand, was 1.57 times on the six-month bills and 1.69 times on the two-year notes. The auction, which will be settled in 2013, is the first since Friday's official resignation announcement. However, Mr Monti, the technocrat prime minister appointed 13 months ago to help lead Italy out of financial crisis, has indicated he could stand in February's elections as leader of an alliance - a move that would put the former economics professor, who has never fought an election, head to head with former leader Silvio Berlusconi. Mr Monti is on Thursday due to meet centrist politicians with whom he could form an alliance should he decide to run for a second term in office. Political uncertainty in Italy has so far had only a limited impact on bond markets. Italy's borrowing costs rose earlier this month when it first emerged that Mr Monti would resign as prime minister and Mr Berlusconi confirmed he would try to return to office. But they have since recovered. Yields on government debt in Italy and other parts of the so-called eurozone periphery, such as Spain, are well below where they were even six months ago, thanks largely to the European Central Bank's offer to buy the short-term debt of ailing eurozone nations. Italy's 10-year government bonds were up 4 basis points at 4.508 per cent in secondary trading by early afternoon on Thursday. This time last year they were hovering around 7 per cent. The cost of insuring against an Italian debt default has risen about 50 basis points since the start of December, hitting 282bp on Wednesday, which equates to annual costs of $282,000 to insure $10m of debt for five years, according to data from Markit. A bigger test of market sentiment will come on Friday, however, when Italy is due to sell up to €6bn of 10 and five-year bonds