Italian bonds decline on speculation

Italys bonds fell on Tuesday, after Prime Minister, Mr. Silvio Berlusconi won a routine vote without an absolute majority, casting doubt on the nations ability to enact austerity measures under his leadership.Italian 10-year yields climbed to a euro-era record amid speculation that LCH Clearnet Limited, Europes largest clearing house, will raise its margin charge on the debt, a rumor denied by the company. Bloomberg News reported on Tuesday that German government bonds pared a decline after European Central Bank council member Jens Weidmann said the bank could not bail out nations by printing money. "The problem is that he hasnt gone," a fixed-income strategist at Monument Securities Limited, in London, Mr. Marc Ostwald, said. He was referring to Berlusconi. "The other big problem is theres a lot of talk going around the market that LCH is going to revise the margins on Italian debt. A lot of people will have to jettison their positions" under such a move, he said. Italys 10-year bond yield rose by 11 basis points, or 0.11 percentage point, to 6.77 per cent the most since the introduction of the 17-member currency in 1999. The difference in yield or spread, over similar-maturity German securities widened to a record 497 basis points. The Italian two-year note yield climbed by 32 basis points to 6.37 per cent. It earlier climbed to as much as 6.44 per cent. Berlusconi won with 308 votes, short of a majority in the 630-seat Chamber of Deputies. The result may lead President Giorgio Napolitano to again call for a confidence vote. The premier has refused to step down even after three members of his party defected to the opposition and six others called on him to resign. "The political journey for Berlusconi has come to an end," a senior interest-rate strategist at ING Groep NV in Amsterdam, Mr. Alessandro Giansanti, said. "The current government can no longer guarantee laws will proceed in parliament. In the short term there will be a relief rally if there is a new government. In the medium term, they will really need to show their ability to make reforms." Volatility on Italys sovereign debt was among the highest among developed-country markets today, according to measures of 10-year bonds, two-10-year spreads and credit-default swaps. The change in the spread was 2.6 times the 90-day average, the Bloomberg gauge showed.
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