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Euro and Bonds Fall on Italian Election Report

Posted by Joseph Trevisani on Feb 25, 2013 11:04:00 AM

New Italian TV election exit polls implying that Silvio Berlusconi’s center-right People of Freedom Party is leading in the race for a majority in the Italian Senate have collapsed the earlier euro and sovereign credit market euphoria.  Polls from La7 and SkyTG24 and RAI the state network, put the coalition of Berlusconi and the Northern League ahead in the overall national vote count for the upper house of the Italian legislature, according to Reuters and CNBC.

The euro has shed as much as  150 points against the dollar and 235 points versus the yen as of 12:00 pm in New York. The yield on the generic 10 year Italian government bond has climbed as much as 31 basis points to 4.487% from 4.178% earlier.

Mr. Berlusconi has vowed to end the budget austerity and repeal an unpopular real estate tax instituted by former Prime Minister Mario Monti.  Pier Luigi Bersani the center-left candidate has promised to continue the economic reforms and the budget severity begun by Mr. Monti and that is seen by the credit markets and the German government as essential to the renewal of the Italian economy. The Italian economy is in the midst of its seventh straight quarter of negative growth, its second recession in the past four years and has averaged zero year to year growth over the past decade. 

Mr. Bersani is leading in the nationwide polling for the lower house. Italian election law guarantees a majority in the lower house by awarding extra seats to the party that wins a plurality in the national vote. However the senate is elected by regions and Mr. Berlusconi’s party is leading according to the exit polls. 

The returns for many areas of the country have yet to be counted.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets

 

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