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Investors face rapidly rising costs to protect themselves from defaulting on Italian debt, which is the latest sign of growing concern about the southern European country.
Spreads on Italy's five-year credit default swap, an instrument that provides investors with a debt default payment, rose to 1
That is, it now costs $ 224,000 a year to insure a fictitious $ 10 million debt from Italy against the default.
The spread has widened considerably within a few weeks. It was below 90 basis points at the end of April. Above all, however, it is still well below the level that was felt during the debt crisis in the eurozone that started in 2011.
Concerns over Italy hit the clock on Tuesday as investors worried about the upcoming new elections this fall, would mean for the country, especially if it's interpreted as a referendum on euro membership.
"Italy could be in a similar situation in six months, with a new populist-dominated parliament, a more radical five-star movement, a stronger league and a weaker president," said Federico Santi, an analyst with the Eurasia Group  The bond markets were the focus of the storm. The two-year bond yield has risen most since 1992, while the 10-year yield has exceeded 3 per cent for the first time since the eurozone debt crisis. Spreads between Italian and German bond yields have also widened significantly, another signal that investors are worried about holding Italian bonds.
Moody & # 39; s, which reviewed Italy's credit rating for a downgrade last week, weighed again on Tuesday. She said:
Italy's sovereign rating would probably be downgraded if we came to the conclusion that those who emerge as the next government will pursue a fiscal policy that will not be enough to sustainably lower the debt ratio in the coming years ,
The failure to articulate and present a credible structural reform agenda that would improve Italy's economic growth prospects on a sustainable basis would be similarly negative for the estimate.