Italians Are Causing Trouble Again
(Kitco News) - Global financial markets were spooked Tuesday as Italian bond yields saw the biggest single-day surge on record for its 10-year bonds Tuesday, following escalating political turmoil in the country.
The gold market has benefited from renewed “risk-off” sentiment as prices hold above $1,300 an ounce.
The 48 basis-point rise in Italian 10-year government bond yields created significant market uncertainty with ripples felt within the North American market; the S&P 500 tumbled more than 1.2% in response.
Safe-haven assets rallied, with the German 10-year bund yield falling to 0.26%, U.S. Treasury yields sliding below 2.9%, and spot gold climbing $6 an ounce with prices trading back above $1,300 an ounce.
According to some analysts, markets are reacting to investors’ fears that ongoing turmoil in Italy's government will detract from efforts the nation’s lenders are making to dispose of bad loans weighing on the country’s balance sheets.
Italian bond yields have been rising since Sunday night after President Sergio Mattarella rejected the candidate for finance minister, a controversial Eurosceptic, who was proposed by the country’s two populist parties: the League and the Five Star Movement.
The move by Mattarella was seen by many as a stand against populism, but his appointment of a technocrat, Carlo Cottarelli, as prime minister means that fresh elections may be called in September, bringing once again to the forefront the issue of whether Italy will remain in the European Union.
According to Capital Economics, should the two populist parties form a government, their economic policies may put them in conflict with the agendas of other EU governments.