Italian Banks Lead European Decliners as Bond Spread Widens

Italian banks dropped in Milan, leading declines in the European Stoxx 600 Banks Index, as the country’s 10-year bond yields rose to the highest in a month on concerns voters in the European Parliamentary elections may turn against Prime Minister Matteo Renzi.

Banca Monte dei Paschi di Siena SpA, which holds the highest amount of Italian sovereign debt relative to tangible equity, fell as much as 5 percent, and was down 4.5 percent to 20.79 euros at 12:15 p.m. UniCredit SpA (UCG), the nation’s biggest bank, fell 2.7 percent to 5.69 euros and Intesa Sanpaolo SpA (ISP), Italy’s second-biggest bank, declined 1.3 percent to 2.19 euros. The FTSE Italia All-Share Banks Index, which has gained 13 percent this year, dropped 3.7 percent.

Renzi’s leadership will test electors on May 25 for the first time after his appointment in February and they might turn toward a protest vote of discontent in a country where the economy is still sluggish.

“Concerns that EU elections may be driven by a generalized protest vote, coupled with recent weakish economic data in the periphery are driving the investor sell-off,” Luca Cazzulani, a senior fixed-income strategist at UniCredit SpA in Milan, said by phone. “I expect that these are short-term movements and not an inversion of a trend.”

Italy’s 10-year yield climbed 12 basis points to 3.18 percent, the highest since April 11. The spread between Italian 10-year bond yields and German bunds widened 12 basis points to 185 basis points. A basis point is a hundredth of a percentage point.

To contact the reporters on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net; Francesca Cinelli in Milan at fcinelli@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net Dan Liefgreen, Jon Menon

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