Italian bonds surged the most since September and stocks rallied after President Sergio Mattarella vetoed populist leaders’ choice of a euro-skeptic candidate for finance minister, fueling investor optimism that there are checks and balances in place that are working.
Ten-year yields slid as much as 12 basis points to 2.35 percent, narrowing the spread over German bunds by 14 basis points to 191. The FTSE MIB rose 1.7 percent in early trading, reversing Friday’s slide and crossing back above its 200-day moving average. The index is still down 7 percent from its peak reached on May 7. Italian banks led the rebound on Monday, with the FTSE All-Italia banks index rising 3.3 percent.
Mattarella became the target of populist rage when he said he rejected the populists’ choice of Paolo Savona for finance minister for the good of the country and the financial “savings of families” that had been endangered by rising bond spreads and market concerns.
“The market seems to cheer the news, but I don’t share the idea that a caretaker government is that reassuring,” Stephane Ekolo, equity strategist at TFS Derivatives, says by phone. “We might be off the cliff, but we are certainly not that far. We may have been witnessing the end of the 2nd republic in Italy.”
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