Italy’s Bonds Slump as Polls Show Nation Rejecting Renzi Vote

Updated on
  • Latest survey shows slight majority voting against reforms
  • Nation’s debt is worst performer in euro area in past month

Italy’s bonds were the worst performers among their euro-area peers in the past month as polls increasingly signaled a constitutional referendum may be rejected by voters, threatening to destabilize the government.

Italian 10-year debt yields climbed earlier to the highest level since June as a survey showed that a majority of respondents would vote against constitutional reforms led by Prime Minister Matteo Renzi. In the referendum scheduled Dec. 4, 39 percent of Italian voters would likely vote “No” and 35 percent would support it, according to a Demos & Pi poll for la Repubblica, published Oct. 30.

Only two of the 26 polls conducted this month signaled Renzi would win the vote, which is aimed at streamlining the government that’s already struggling to shore up the nation’s economy and banking sector.

Holders of Italian debt lost 2.8 percent in the past month through Friday, the worst performance in the euro region, according to Bloomberg World Bond Indexes.

“Uncertainty around Renzi’s ability to get the reform through” is weighing on Italian debt, said Matthew Cairns, a strategist at Rabobank International in London. “Aside from the significant push-back he faces across opposition parties, Renzi is also contending with internal party challenges.”

Markets would “welcome Renzi’s success at shaking up the constitution” as it’s currently seen as a “major roadblock for implementing much-needed structural reform within the Italian economy,” Cairns said.

The yield on Italian 10-year bonds rose two basis points, or 0.02 percentage point, to 1.68 percent as of 4:35 p.m. London time, having earlier risen to 1.70 percent, the highest since June 24. The 1.25 percent security due in December 2026 fell 0.21, or 2.10 euros per 1,000-euro face amount, to 96.10.

Benchmark German 10-year bund yields were little changed at 0.16 percent, while those on similar-maturity Spanish debt declined two basis points to 1.21 percent.

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