Fundamental Comment

Italian market shows signs of recovery, yet uncertainty still predominant

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Italian markets started to show some signs of recovery on Wednesday, but the recovery could prove to be short lived as investors await the latest developments in the political situation.

Italy’s FTSE MIB index recovered from a 9-month low recorded yesterday, trading at 21,483.15, up 0.62% after dipping 3.7% on Tuesday on reports showing that 5 Star and the Lega party are attempting to revive their coalition.

Overall, the euro zone's banking sector fell 4.5% in yesterday's trading, but it started to recover today.

Italy's debt selling of 10-year bonds on Wednesday saw the strongest demand since December, but yields were at 3%, the highest since May 2014.

The current political crisis in Italy has caused sharp changes in the financial markets, as the euro fell to a 10-month low against the dollar and global stock markets saw a sharp sell off.

Italy's 10-year government bond yields slipped slightly from its highest levels since March 2014, hovering around 3.023% after hitting a high of 3.388% on Tuesday.

The yield on Italian government bonds for two years continued to rise today, hitting its highest level since September 2012 at 2.909%.

The record rise in yields on government bonds in Italy was triggered by after political uncertainty, as the euro area’s third-biggest economy heads towards a new election that could give a greater mandate to political parties against the EU.

As of 10:22 GMT, the euro is meanwhile trading higher at $1.1610 after falling to a 10-month bottom of 1.1509 the previous session.

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