Bad news for Beppe Grillo (and his anti-EU 5-Star Movement) is good news for Italian bondholders. 10Y BTP yields tumbled 9bps this morning to 2.00% – the lowest since January – after the comedian suffered heavy setbacks in local elections on Sunday, dimming the party’s prospects of leading the national government after parliamentary elections next year.
As Bloomberg reports, Five Star, led by former comedian Beppe Grillo, failed to make it to the second round of voting in Genoa, Palermo, Parma and Verona, according to projections. Centrist-oriented parties fared better in the approximately 1,000 towns and cities that voted, with the second round scheduled for June 25. Turnout was just over 60 percent. A multi-party deal on a new electoral law unraveled last week, making it highly unlikely that a snap national vote will be held this year. Investors had been concerned that an election in 2017 could lead to either a hung parliament or a win for the anti-establishment Five Star. The current legislature expires in 2018.
And the bond market cheered…
As Reuters reports, opposition parties were quick to pile on…
Matteo Ricci, head of local affairs for the ruling centre-left Democratic Party (PD). “This is a huge defeat for 5-Star. Not only are they not making the run-offs, but they are polling disastrous numbers.”
5-Star hoped to build on last year’s election successes, when it took charge of Rome. But its rule in the capital has been mired in controversy, denting its image, and its grassroots operations elsewhere have been snarled by internal feuding.
“Today shows that a year after its victory in Rome, the verdict on its ability to govern at a local level is negative,” Ricci said.
Notably, the ruling Democratic Party and the Five Star had been neck-and-neck in national opinion polls, with each drawing about 30 percent support, but as Reuters notes, Sunday’s election appeared to follow a similar decline for anti-establishment groups, with the National Front in France and the anti-EU group UKIP in Britain both suffering poll failures this past week.