Italian and Spanish bond yields have risen dramatically in the wake of Italian Prime Minister Mario Monti’s resignation announcement over the weekend.
10-year borrowing costs in Italy jumped 36 basis points to 4.9 per cent, a two-week high, whilst Spanish bond yields increased by 18 basis points to 5.7 per cent.
Alessandro Giansanti, senior rate strategist at ING, said Monti's decision could see yields rise to 5.25 per cent over the next two weeks as it will complicate the passage through parliament of measures aimed at keeping the country's debt in check.
Italian and Spanish debt auctions this week may suffer from the increase, but experts expect demand to remain stable.
“I don't think the market is really going to take Italy to task, unless they struggle with the auction this week, which I don't think they will," Marc Ostwald, strategist at Monument Securities said.
City A.M. Reporter