Monti exit fuels Eurozone bond yield explosion

 
Ben Southwood
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ITALIAN and Spanish bond yields soared yesterday, as markets worried about the effects of Mario Monti’s departure on Eurozone rescue plans.

Yields on 10-year Italian government debt climbed to hit 4.817 per cent, having opened at 4.547 per cent, as investors were spooked by the influential technocrat’s commitment to leave after Italy’s parliament votes on the 2013 budget. Yields on two-year paper climbed 36 basis points to hit 2.534 per cent.

Spanish yields jumped from their opening 5.464 per cent to 5.563 per cent, as creditors considered the wider impact of such a key figure in the Eurozone debt crisis.

But Chris Scicluna at Daiwa Capital Markets played down the significance of Monti’s early exit. “What happened only brought the elections forward by about six weeks... I’m not necessarily panicking about Italian politics right now,” he said. But he warned that yields would stay high until the Italian election gave investors some certainty on the future of the Eurozone’s third biggest economy.

Monti decided to step down after former premier Silvio Berlusconi’s People of Freedom bloc withdrew their support from the former professor. Although Monti said he would not campaign for a return to office, Scicluna said many investors still hold out hope he will change his mind and run as part of a unity government.