An Italian banking crisis and mark-to-market rules

Italy's 10-year sovereign bond yield has risen from 1.78% at end of April and prior to the general election to 3.66%. That's the highest since the beginning of 2014 and the yield is still rising. Domestic banks and Italian life insurers are major holders of these bonds, with life insurers having a massive 47% of their assets under management in 2016 in Italian debt. That's a big problem if Italian yields stay elevated.

To make matters worse, the bond selloff is creating an equity selloff too. Italy’s FTSE MIB stock index fell to its weakest since April 2017.

It's the banks where the biggest problems lie, since they are at the heart of the financial system. They hold 387 billion euros of Italian government debt. So, Italian banks are quickly developing a mark-to-market problem that will d...


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