A huge jump in the yield on Italy’s ten-year bond has sent a wave of fear through global financial markets.

The yield on Italy’s ten-year government bond spiked 0.88 percentage points to 7.65% as of 10:50 a.m. in New York, before moving down to 7.06% as of 3:16 p.m.

Also this morning, the yield curve inverted, with shorter-term bonds—the one year reached 8.15%—paying more than the five-year at 7.71% and the ten-year bond.

This level of yield on the ten-year bond, now above the 7% threshold that is generally regarded as the outer limit of what is sustainable for a government with Italy’s debt load to pay—plus an inverted yield curve that is signaling worries over immediate disaster—is exactly the pattern that led to collapse in Greece, Portugal, and Ireland, and raised the need for a Eurozone bailout.

With market worries so intense, investors and institutions are looking to add safety—and that has made the sell-off worse.

For example, London-based LCH.Clearnet, which clears about 50% of the $348 trillion global market for interest-rate swaps, raised its margin call on Italian seven- to ten-year debt by 5 percentage points to 11.65% this morning. That has led to more selling by traders and institutions that don’t want to put up the extra cash, or for whom derivative insurance on Italian bonds is now too expensive.

So why the sell-off of Italian bonds today?

My thinking is that financial markets took a harder look at the delayed-action resignation of Italian Prime Minister Silvio Berlusconi and didn’t like what they saw. Yesterday, Berlusconi promised that he would resign after the Italian Parliament approved a new austerity package required by the Eurozone.

But where’s the package?

The legislation containing the proposed austerity measures demanded by the Eurozone leaders who took Berlusconi to the woodshed at last week’s G20 summit was supposed to arrive last Thursday, Senate Finance Committee Chairman Mario Baldassarri told Bloomberg in an interview today. Then it was supposed to arrive Friday, he said.

“Monday, they let us know they would wait for the vote in the Chamber of Deputies.” That vote took place yesterday. And this morning, the Senate Budget Committee suspended a session to examine the package after it failed to receive the text.

A meeting this afternoon also ended quickly when legislators discovered they still hadn’t received the proposed legislation. Apparently the austerity package went to President Giorgio Napolitano only today.

The austerity measures are scheduled for a vote in the Senate next week and in the Chamber of Deputies after that. So much for hopes of quick action that might restore market confidence, or that might accelerate Berlusconi’s resignation.

On this schedule, global financial markets are going to be treated to watching dysfunctional Italian politics for days and maybe weeks.

And it could get worse. If the solution to Italy’s political crisis were to call new elections, those probably wouldn’t be scheduled before February or March.

The financial markets have apparently decided that this is just another Berlusconi trick, a way for his coalition to hold onto power longer and negotiate the transition to a government that would be Berlusconismo without Berlusconi. There is even talk of new elections instead of a national unity government, and that Berlusconi would run again in those elections.

All this has filled the markets with fear that yesterday’s talk meant nothing. To which those markets have turned in a very clear no-confidence vote.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. For a full list of the stocks in the fund as of the end of September, see the fund’s portfolio here.