Italy Bonds Roiled as Populists Debate $300 Billion Write-Down

Italian bonds slumped as populist parties struggling to form a government discussed a potential government debt write-down worth billions of euros.

League lawmaker Armando Siri told La7 television on Wednesday that the anti-immigrant League and the anti-establishment Five Star Movement are discussing a 250 billion euro ($300 billion) write-off from the European Central Bank. He was confirming an earlier report on a draft plan by the Huffington Post.

The ECB is barred from directly financing governments under the Maastricht Treaty. An ECB spokesman declined to comment on the leaked draft. The yield on benchmark 10-year notes climbed above 2 percent for the first time since March on the news.

“This is all fairly disruptive stuff for Italian bonds,” said Jason Simpson, a strategist at Societe Generale SA. “The markets had been assuming that they would tone down some of their more radical views.”

Talks between the League led by Matteo Salvini and Five Star headed by Luigi Di Maio are dragging on. “The next hours are the ones in which we will make a decision,” Salvini told reporters in Rome Tuesday. “Either a strong government will start, or we will responsibly say we tried.”

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