Italian Assets Surge as Coalition Passes Key Test From Five Star
Italian Assets Surge as Coalition Passes Key Test From Five Star
(Bloomberg) -- Italian bonds climbed for a third day after Prime Minister-designate Giuseppe Conte won backing to form a new government, tempering political uncertainty and reassuring financial markets.
Ten-year yields dropped to fresh record lows after Five Star Movement members approved a coalition with the Democratic Party, averting the possibility of fresh elections and paving the way for a less hostile stance toward the European Union. The spread over yields on German bonds, a key gauge of risk in the nation, fell to 150 basis points, the lowest level since May 2018. Stocks rallied.
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“Italy should keep performing,” Peter Chatwell and Peter McCallum, strategists at Mizuho International Plc, wrote in a note to clients. “We are expecting BTPs to chase down to 130 basis points in the 10-year spread against Germany with the formation of the coalition government.”
Italy’s bond market is playing catch-up with a rally that has pushed the yields on much of Europe’s sovereign debt below 0%, as the omission of right-wing politician Matteo Salvini from government helped to remove political risk. A new administration could be sworn in later this week, with a first confidence vote in the lower house by the weekend and then in the Senate early next week.
Ten-year yields fell as much as eight basis points to 0.81%. Those on two-year bonds plunged 10 basis points to -0.38%.
The FTSE MIB Index advanced 1.6% on Wednesday, the most among major European benchmarks, led by banking and luxury shares. UniCredit SpA and Intesa Sanpaolo SpA paced the gains among financial stocks on the prospects of a Conte-led government.
--With assistance from Ksenia Galouchko.
To contact the reporter on this story: John Ainger in London at jainger@bloomberg.net
To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, William Shaw, Anil Varma
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