Italy Debt-Risk Premium Highest in Nearly 5 years

Italy's debt-risk premium on Monday soared to its highest level since November 2013 and the Milan stock exchange plummeted as the country continued in political turmoil, with fresh elections now very likely.

Italy's 10-year bond yields -- the return an investor gets on holding the bond -- spiked to 233 points more than on the equivalent German debt as former International Monetary Fund economist Carlo Cottarelli was asked to form a government.

Yields typically rise at times of stress as investors demand higher returns if they are to buy a country's bonds. 

The 10-year Italian bond had closed Friday with the spread at 206 points -- or 2.06 percentage points -- and dipped as slow as 192 points in early trade.

Monday's sharp widening in the spread reflected investor worry over the prospect of a fresh eurozone crisis after the anti-establishment, far-right alliance of the Five Star Movement and the League proposed a euroskeptic for economy minister.

President Sergio Mattarella turned that proposal down, triggering a brief surge in investor confidence early Monday, only for the markets to yoyo back into the red as the uncertainty persisted.

In early afternoon trade, the Milan stock exchange was down more than 2.0 percent before narrowing its losses to 1.4 percent.

The country's main banks were badly hit, with Banco BPM, Bper Banca, Banca Generali, Ubi Banca and Finecobank all seeing their shares slide.

Cotarelli has announced he will hold an election by the start of 2019 at the latest.

A new vote may be held even earlier, however, should parliament not approve his government.