Italian bond futures dive on election risk


LONDON, Sept 30 (Reuters) - Italian government bond yieldsjumped on Monday after five ministers from former premier SilvioBerlusconi's party stepped down at the weekend, increasing therisk of new elections.

The resignations were set off by clashes at a Friday cabinetmeeting over an imminent sales tax hike.

Italian Prime Minister Enrico Letta will go beforeparliament on Wednesday and hold a confidence vote to verifywhat is left of his parliamentary backing. President GiorgioNapolitano began talks on Sunday to solve the crisis.

Tensions have been running high in Letta's left-rightcoalition ever since last month, when Berlusconi was convictedof tax fraud. His allies have threatened to bring the governmentdown if he was ousted from parliament following his conviction.

BTP futures opened 112 ticks lower at 109.23. Theylater hit a two week low of 108.79.

"I don't think markets expected Italy to hold earlyelections ... I think this is where we're going," one tradersaid.

German Bund futures opened 33 ticks higher at140.78, with the risk of a U.S. government shutdown alsosupporting a shift into the perceived safety of top-rated bonds.

On Sunday, the Republican-controlled House ofRepresentatives passed a measure that ties government funding toa one-year delay of President Barack Obama's landmark healthcarerestructuring law, while Senate Democrats have vowed to rejectit.

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