Tourists visit the leaning tower of PisaFABIO MUZZI
The stock market loves the news that Silvio Berlusconi will resign as Italy's prime minister. The bond market, though, remains unimpressed.
On Tuesday, Mr. Berlusconi ended speculation about his political future, saying that he would step down after the country's budget bill – which is supposed to include austerity measures demanded by European nations – is passed. The planned resignation follows the failure of his coalition government to secure a majority in a key vote on Tuesday.
Apparently, investors believe that Mr. Berlusconi's departure and the arrival of new leadership will pave the way toward better policies in the indebted nation. In recent months, Italy's large deficits have drawn unfavourable comparisons to Greece, leading many observers to speculate that the next phase of the sovereign-debt crisis will centre around Rome.
For now, stock markets are upbeat. After treading water for most of the day, the S&P 500 was up more than 10 points, or 0.8 per cent, in afternoon trading. The Dow Jones industrial average was up 75 points or 0.6 per cent.
However, the bond market remains concerned. The yield on the 10-year Italian government bond, which has been spiking since the middle of August, showed no signs of turning around. It was recently spotted approaching 6.7 per cent – well above the 6 per cent threshold that some observers have identified as the point at which Italy is going to have severe funding problems.