Political instability in Italy has steered investors away from the country’s government bonds, leaving most of the fourth-largest European economy’s sovereign debt in the hands of banks and insurers.

Intesa Sanpaolo SpA (BIT:ISP), a Turin-based bank, owns the most, with more than 90 million bonds, or nearly 5 percent of total debt, according to Bloomberg data compiled by Easing Economics. This is worryisome, as Fitch Ratings assigned a negative outlook to the bank's BBB+ rating earlier this month.

It’s followed by Assicurazioni Generali SpA (BIT:G), Italy’s largest insurance firm, with 59.7 million, about 3.5 percent. Overall, the major holders of sovereign debt include 19 banks and 11 insurers, according to the data, compiled by a Madrid-based economist.[[nid:1403914]]

Investors have avoided Italian sovereign debt as the country’s tension-wracked political class battles over the future of former Prime Minister Silvio Berlusconi, who was convicted last month of tax fraud and faces expulsion from the Senate as a consequence. Allies in his party have threatened to pull out of the coalition government if Berlusconi is expelled, potentially throwing the already fragile government into disarray.

The tension has pushed short- and long-term Italian borrowing costs above those of debt-saddled Spain. The government's 10-year yield hit 4.49 percent on Tuesday morning, compared with 4.47 percent in Spain, the Wall Street Journal reported.

Interest-rate strategists at RBS told the Journal that they hope Italy’s upper house will push back any vote on Berlusconi’s future.

“A delay is most likely, which would be supportive for Italian bond spreads in the short term,” they said, “as it pushes any government collapse and new elections further out.”