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Italian 10 year bond gross yield was up over 10% on Wednesday as investor fears mounted that the Euro zone’s third largest economy could very well experience a debt crisis similar to that of Greece.
Berlusconi Loses Seat
Following a crucial victory in passing the budget vote on Tuesday, Prime Minister Silvio Berlusconi is facing resignation after losing his parliamentary majority.
Eight members of his own party defected yesterday, effectively removing the leader from his post after two decades as Prime Minister. Following a meeting with Giorgio Napolitano, a statement was released by the Italian President claiming that Berlusconi will resign following the approval of economic reforms by parliament.
A Poor Outlook For Italy
Italian debt sits currently at €1.9 trillion, approximately 120% of their GDP, following average growth of less than 1% annually over the past decade.
As debt mounts and uncertainty in the government increases, the 10 year bond yields hit approximately 7.4% in the early afternoon on Wednesday. This figure is well past the 7% mark that economists claimed is the level beyond which the bond market is unsustainable.
Italian 10 year bonds severely underperformed similar German bunds, pushing spreads to 571 basis points by the early afternoon.
FTSEMIB DOWN
Euro Falls Against Dollar
The Euro was down 1.5% on the dollar on Wednesday after the Italian 10 year bond hit 7%. Investors have increased the sale of the euro as the European debt crisis escalates, also finding refuge in the Japanese Yen, which was also up 1.5% by the early afternoon.
European Stocks Down
With the spread between Italian and German bonds at its highest since the euro was introduced, the Italian government in turmoil, and the crisis in Greece still searching for a solution, stocks dipped across Europe on Wednesday. The FTSEMIB in Italy was down 3.6% on Wednesday while the FTSE100 dropped 2%, and the Euro STOXX 50 was down 2.7% by 1:00 pm.
References
↑ Italian Bond Yield
↑ The Last Days of Silvio Berlusconi
↑ Berlusconi announces imminent resignation as Italy’s Prime Minister
↑ Euro sells off as Italian 10 year bonds pass 7 percent
↑ Italy 10 Germany 10 Spread
↑ Euro vs Dollar ADVFN
↑ Yen vs Euro ADVFN
↑ FTSEMIB
↑ FTSE 100
↑ Euro STOXX 50
