Italian Yields at Two-Year High Versus Spain on Referendum Poll

  • Survey signals more voters are against changing constitution
  • Ipsos poll ‘is weighing on Italy’: Mizuho’s Antoine Bouvet

Italy’s bond-yield spread to Spanish securities climbed to the highest level in almost two years after the latest poll showed that the constitutional referendum, on which Prime Minister Matteo Renzi’s political fate hangs, is too close to call.

Italian 10-year government bonds declined, erasing last week’s gain, after a survey conducted by Ipsos PA for the newspaper Corriere della Sera showed 25 percent of Italian voters would reject overhauling the constitution in the Dec. 4 vote. Twenty-three percent would support it. Renzi has said he will step down if a “no” vote prevails.

With the race heating up and polls inconclusive, surveys are increasingly in focus. In four of the six most recent polls, the camp rejecting the vote was ahead. Italy’s sovereign bonds have been some of the worst performers in the euro area in the past month, losing 0.2 percent, amid the recent flare-up in investor concern over the region’s banking industry, according to Bloomberg World Bond Indexes.

The survey “is certainly weighing on Italy,” said Antoine Bouvet, a London-based rates strategist at Mizuho International Plc. “There is also the fact that the perception of the market is that Italy has a higher sensitivity to problems in the financial sector in Europe in general, so that is also harming the country. Those are the two factors behind Italy’s underperformance.”

Italy’s 10-year securities fell, with the yield climbing five basis points, or 0.05 percentage point, to 1.24 percent as of 4:33 p.m. in London. The yield declined three basis points in the previous week. The 1.6 percent security due in June 2026 dropped 0.50, or 5 euros per 1,000-euro ($1,122) face amount, to 103.28.

The yield premium investors demand to hold the securities over similar-maturity Spanish bonds climbed to 33 basis points on Monday, the highest since October 2014 on a closing basis.

Spain’s bonds outperformed Italy’s as Socialist party leader Pedro Sanchez, the main obstacle to the caretaker Prime Minister Mariano Rajoy’s second term in office, resigned late on Saturday. This may have opened the way to a more stable government after two inconclusive elections and nine months of political wrangling.

That news “is increasing the odds of a Rajoy-led government,” Mizuho’s Bouvet said, adding that the divergence between Italy and Spain was likely “stretched.”

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