Fresh sell-off in Italian debt ends day-long calm

Yields on 10-year Italian debt rise to their highest level since March 2017

 Five-Star Movement (M5S) leader Luigi Di Maio  talks to the media, as he arrives at the Lower House in Rome, Italy

Five-Star Movement (M5S) leader Luigi Di Maio talks to the media, as he arrives at the Lower House in Rome, Italy

 

Italian bond prices have taken another leg downwards as political turbulence in the euro zone’s third-largest economy continues to rumble markets.

Yields on 10-year Italian debt hit 2.45 per cent in Wednesday’s trading, up 12 basis points on the day to their highest level since March 2017. Yields rise when prices fall.

The move comes after a day of stability in the Italian markets on Tuesday, following several successive days of sharp increases. The 10-year yield has risen by 67 basis points since the start of this month amid repeated bouts of selling.

Its spread over the equivalent German bond - a widely-watched indicator of euro zone political stress - reached 196 basis points on Wednesday, its highest level since June last year.

The anti-establishment Five Star Movement and the far-right League - which are close to forming a government - have become locked in a stand-off with Sergio Mattarella, the country’s president, after pushing for a staunchly Eurosceptic economist to be finance minister.

David Simner, a portfolio manager at Fidelity International, said there had been “a sense of panic in the air” in recent days.

“Investors have scrambled to reduce risk as the spending implications of the new government has naturally caused concerns over the future dynamics of the debt load of a country which is already very heavily laden,” he said.

Many investors were waiting “to see if [THE MARKET]has found a new lower clearing level that may provide some consolidation”, Mr Simner added.

The latest shift in Italian bonds came as the country’s equity markets also sold off, led lower by banks. The FTSE MIB index of leading shares fell 2 per cent on the day.

- Copyright The Financial Times Limited 2018