Italian Bonds Tumble On Fears Another Government Collapse Is Imminent

For years, reformers have been pushing for changes to the Italian government structure that would, among other changes, reduce the number of seats held by lawmakers. Back in October, Giuseppe Conte’s coalition government voted in favor of a plan to reduce the number of lower house members from 630 to 400, and the number of senators from 315 to 200.

Throughout modern political history, examples of legislative bodies voluntarily accepting reforms that would knowingly curtail the powers and privileges of its members are few and far between, and Italy is no exception. Not long after the vote, a group of mostly opposition members tried to crash the government and hold a new snap election to save their seats. I mean, what other choice did they have? They’re politicians…do you really expect them to go out and get a real job?

Of course not.

So the group of lawmakers filed a petition and successfully challenged a reform that would have rendered them redundant, forcing the government to hold a referendum vote if it wants to follow through.

The referendum can be held between April 15 and June 15. But by insisting on the vote, Conte is raising the likelihood of a rebellion that could collapse his government, which is what the market’s afraid of.

And so it is that Italy’s 10-year yield climbed 5bps to 1.39%, its highest level since August, on Thursday, widening the BTP-bund spread 3bps to 162bps.

“Although nothing can be given for granted in Italy, we would advise investors to be ready for 2020 snap elections,” analysts at Citi advised the bank’s clients in a note published on Wednesday.

That shouldn’t be a problem. Anybody who has been paying attention to Italian politics over the past year should be ready for the government to collapse at any time.