Italyian government bonds slumped this morning, leading declines among securities from Europe's high-deficit nations, as the inconclusive election results triggered renewed concern that Europe's sovereign-debt crisis will intensify.
Italian 10-year yields climbed the most in 14 months as Spanish and Portuguese bonds also slid, while German bunds advanced for a fourth day.
Italy is scheduled to sell €8.75 billion euros of six-month bills today.
“There are huge moves in Italian bonds because of the uncertainty,” said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London. “The Italian election result hasn't gone as the market anticipated. We could be in a stale-mate in Italy for a while and that's dragging all the peripheral spreads wider compared with Germany,” he said, referring to the yield difference between bunds and securities from Europe's high debt and deficit nations.
Italy's 10-year yield climbed 29 basis points, or 0.29 percentage point, to 4.78 per cent as of 9:34 a.m. London time, after rising as much as 44 basis points to 4.93 per cent. That's the biggest daily increase since December 19th, 2011.
European shares also fell this morning, with bank stocks suffering most.
The pan-European FTSEurofirst 300 index fell 1.2 per cent to 1,151.76 points while the euro zone's blue-chip Euro STOXX 50 index slid 2.7 per cent to 2,581.25 points.
Italy's benchmark FTSE MIB equity index was amongst the worst hit, slumping 4 per cent, reflecting concern that its election result, which left no clear government, could hamper economic reforms and fuel its costs of borrowing.
Worries about a new flare-up in the euro zone's debt crisis fed through to the bank sector, whose lenders could be hit with new write-downs and bad debts if the region's economy weakens as a result of debt problems in countries such as Italy and Spain.
The STOXX Europe 600 Banking Index was the worst-performing European equity sector, falling 2.4 per cent as Italian banks such as Intesa and Unicredit slumped 7.5 and 7 per cent, respectively.
“There's no clear outcome in the Italian election, and the markets hate uncertainty,” said Terry Torrison, managing director at Monaco-based McLaren Securities. “You could easily see a three or four per cent sell-off in the next couple of sessions."
The euro zone debt crisis led to a sovereign bail-out of Greece and other smaller countries, but Spain has also been under pressure over a possible similar bailout. Italy has faced a battle to contain its own borrowing costs.
Spanish foreign minister Jose Manuel Garcia-Margallo said the Italian result was extremely worrying. Spain's IBEX stock market falling 2.7 per cent.
“Spain will also now come under pressure,” said Syz Asset Management's chief economist Fabrizio Quirighetti, who added that European equity markets could potentially fall some 5 per cent this week.
The fall on the Spanish and Italian stock markets was more pronounced than those of bigger, northern European markets seen as safer economies, with Germany's benchmark DAX equity outperforming bigger falls elsewhere with a 1.9 per cent decline.
Bloomberg/Reuters
