Italian bond yields jumped and European shares fell on Monday as political tension in Italy rattled investors already fearful of a looming U.S. government shutdown.
Ten-year Italian government bond yields rose 31 basis points to 4.73 percent. It was their biggest one-day gain since June, although still far from the level that causes funding problems.
Low risk German bonds yields dropped 3 basis points to 1.69 percent. The euro hit a three-week low against the safer yen at 131.38 yen.
Investors are concerned Italy will be forced into new elections just seven months after the last inconclusive vote, following Silvio Berlusconi's move to pull his ministers out of the ruling coalition on the weekend.
"It seems like they're going to try their best to work out a new coalition government and if that doesn't happen its new elections, and if there's new elections there's going to be a lot of worries in the market," said Ishaq Siddiqi, market strategist at ETX Capital.
The market's worry is that an extended period of political uncertainty in the euro zone's third largest economy would delay much needed reforms and reignite the region's debt crisis.
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