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Financial markets hold steady over Letta's resignation

Analysts say investors hope Renzi implements reforms as premier

14 February, 16:06
Financial markets hold steady over Letta's resignation (ANSA) - Rome, February 14 - Italian financial markets held steady Friday despite the political turmoil that followed the resignation of Enrico Letta as Italy's premier, clearing the way for his Democratic Party (PD) colleague Matteo Renzi to take on the position.

Renzi effectively pulled the plug on Letta's executive when he requested the PD withdraw support at a party meeting Thursday so he could take the helm of a new one that would drag Italy out of the "quagmire".

Amid the turmoil, 10-year-bond yields continued to flirt with the lowest level seen since 2006, dipping to just over 203 basis points Friday morning, and the volume of Italian bond futures trades climbed to their highest level almost one year.

Yield on Italy's 10-year paper dipped early Friday afternoon to 3.70%.

If Renzi takes the post he will be the youngest premier in Italy's history and the country's third consecutive non-elected premier in two years.

Analysts said investors seemed to have some confidence that Renzi will enact reforms in Europe's fourth-largest economy that could boost business confidence and economic growth. "The markets seem to positively judge the potential new government...although it is premature to draw definitive conclusions," Citigroup said in a note.

At Barclays, analysts said the rise of Renzi will probably be seen by investors as "moderately" positive because it increases the possibility of faster reforms.

BNP Paribas warned that the "initial enthusiasm of markets may cool down in the face of the difficulty of change," which Renzi must push via through a coalition government.

Meanwhile, Moody's rating agency is expected to deliver a new report on the Italian economy Friday and analysts at Credit Suisse said they do not expected any improvement in the agency's outlook for Italy.

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