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Alternative Market Briefing

Other Voices: Has Italy crossed the Rubicon?

Monday, December 05, 2016

Zurich / New York, December 5, 2016 – Jon Jonsson, Senior Portfolio Manager Global Fixed Income at Neuberger Berman

Our first thoughts on the Italian referendum result.

The decision by the Italian electorate to vote No in yesterday’s referendum on constitutional reform has numerous ramifications. In the short term, yields on Italian government bonds are likely to soar while spreads against other major European bonds will continue to widen. Volatility will increase, not just in Italy but across Europe. Further down the road, there is also the possibility that Italy could be downgraded by the ratings agencies, precipitating a rise in its borrowing costs.

Most worryingly, the No vote could exert a baleful influence on the ailing Italian banking sector, where banks such as UniCredit, Banca Popolare and, in particular, Monte dei Paschi di Siena have been under intense pressure all year due to their non-performing loans.

It’s important to remember, however, that the referendum was not about Italy’s continued membership of the European Union – although it has been interpreted as such in many quarters. Prime Minister Matteo Renzi was seeking to expedite the political process by limiting the power of the Senate and ensuring the Lower House becomes the primary legislative body. His initiative received both internal and external support from domestic politicians and international organizations such as the OECD. Indeed, in a 2015 report, the latter observed t......................

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