The Italian government’s borrowing costs shot up on Tuesday in the wake of the inconclusive parliamentary election.
There was a big increase in the amount of interest Rome has to offer to investors on short-term government bonds – maturing in six months time.
But the big test comes on Wednesday with an auction of up to 6.5 billion euros worth of five and 10 year bonds, which are not covered by the European Central Bank’s safety net bond-buying programme.
Gavin Jones, Reuters Chief Economic Correspondent, says it is not just Italy under pressure: “Every indicator of market stress on Italy is going up sharply. The cost of insuring Italian debt against default has also risen and it’s not just in Italy, because obviously this is spreading abroad and stock markets are down throughout Europe because of the Italian elections.”
Fears of a future default by Italy on its government bonds caused a big sell of shares in the country’s banks – which have invested heavily in those bonds.
The stock market authority temporarily banned the short selling of shares in the country’s biggest retail bank, Intesa Sanpaolo as its stock fell sharply.