(Bloomberg) -- Italian bonds and stocks slumped the most in weeks as a final attempt to break a political deadlock with a non-partisan government looked likely to fail, pushing the country toward repeat elections.
The leader of the Five Star Movement Luigi Di Maio and Matteo Salvini of the anti-immigrant League rejected the idea of a non-partisan prime minister, with Salvini, who leads the center-right coalition, calling for elections on July 8.
“If a July election materializes, then a larger political risk premium will have to be factored in,” said Marc Ostwald, a strategist at ADM Investor Services. “There seems little reason to believe that a new vote will not yield a similar result to the last one.”
The yield on 10-year Italian bonds rose as much as 10 basis points, the most in two months, to a six-week high of 1.86 percent. The premium over equivalent German bunds climbed to 132 basis points from 123 basis points on Monday. The FTSE MIB benchmark index declined as much as 2.4 percent, the steepest intraday decline since March 22.
Italian bonds and stocks had so far shrugged off the country’s political turmoil, choosing instead to focus on improving economic growth and continued support from the European Central Bank’s unprecedented package of easing measures.
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