Italy's borrowing costs fell on Tuesday in a bond auction that raised 3.5 billion euros ($4.5 billion), a day before the country is likely to exit the European Union's excessive deficit procedure. The Italian Treasury raised 2.5 billion euros in zero coupon bonds due to be redeemed in December 2014 at a rate of 1.113 percent compared to 1.167 percent in the last similar sale last month.
It also raised 987 million euros in inflation indexed bonds due in September 2018 at a rate of 1.83 percent compared to 2.16 percent in March. The European Commission has hinted it could drop an excessive deficit procedure against Italy on Wednesday on condition that the country remain under the EU-mandated limit of 3.0-percent deficit relative to output. The decision is eagerly awaited by Prime Minister Enrico Letta's new coalition government and is expected to ease tensions on the financial markets. Dow Jones Newswires contributed to this report.