Italian Stocks Rejoice, But Bonds Waver As Berlusconi Nears The End (EWI, FXE, ITLY, ITLT, UNCFF, ISNPY)

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November 9, 2011 1:06am NYSE:EWI NYSE:FXE

Scott Martin: After losing the majority in the Italian parliament, Silvio Berlusconi has signaled that he will in fact step down after the country passes an ambitious austerity budget. Stocks in Milan surged

on the news.

Berlusconi, the prime minister of Italy for the last 17 years, failed to get enough votes to pass his version of IMF-mandated economic reform — widely regarded as an impromptu show of “no confidence” in his administration.

He will quit once a revised version of the bill is ratified.

Markets are applauding in what amounts to relief that the long-dreaded end of Berlusconi’s government will at least be managed with a minimum of chaos.

Leading Italian banks — Unicredit (PINK:UNCFF) and Intesa (PINK:ISNPY) — are gaining ground, as are the broad Italian market (NYSEARCA: EWI) and the euro (NYSEARCA: FXE).

However, the Italian bond market — the world’s third-largest — is getting worse. The yield on 10-year Italian paper is now all the way up at 6.797%.

Take a look at how the PowerShares DB 3x Italian Treas Bond ETN (NYSEARCA: ITLT), which is effectively triple-exposed to Italian bonds, has fared compared to its long-only counterpart PowerShares DB Italian Treas Bond ETN  (NYSEARCA: ITLY):

Written By Scott Martin From Emerging Money

Emerging Money provides insightful and timely  information about the increasingly important world of Emerging Market  investments. CNBC Emerging Markets Contributor Tim Seymour leads the  team of Emerging Money to bring you cutting edge global news and analysis.

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