According to Bloomberg, Italy’s 2-year bonds prices fell sharply amid political instability in the country. At the same time, the euro fell below $1.16 for the first time in six and a half months.
The yield on the 2-year Italian government bond jumped by 100 basis points to 1.91% to mark the highest level since September 2013. It briefly retreated to 1.70% and then continued to rise. At the time of writing, it stood at 2.413%. Meanwhile, the yield on 10-year bonds rose by 22 basis points to 2.91% and further to 3.221%.
According to experts, Italy will face new elections after the country's president Sergio Mattarella asked to form an interim government. Earlier, private law professor Giuseppe Conte, who was a prime minister candidate, refused to form a government. Italian Prime Minister-designate Carlo Cottarelli told reporters that elections would be held in the autumn or early next year.
The prospect of new elections caused unrest in financial markets. Investors have been concerned that this could question Italy’s existence in the eurozone. An important issue for the Italian bond market will be the formation of a coalition ahead of the elections led by the League party. The 5-Star Movement (M5S) said it was ready to cooperate with it.
According to Richard Kelly, head of global strategy at Toronto-Dominion Bank in London, a pact with Forza Italia could soothe markets.
