Italian Bonds, Euro Drop on Debt Crisis Concern; Stocks, U.S. Futures Fall
By Stephen Kirkland, from Bloomberg
Italian and Spanish bonds fell, sending borrowing costs relative to German bunds to euro-era records, while stocks and the common currency dropped on concern Europe’s debt crisis will spread. U.S. index futures slumped.
The extra yield investors demand to hold Italian and Spanish 10-year bonds instead of bunds, Europe’s benchmark government securities, rose to the highest since the euro was introduced in 1999. The Markit iTraxx SovX Western Europe Index of default swaps jumped 7 percent to an all-time high. The MSCI All-Country World Index lost 0.7 percent at 6:30 a.m. in New York and Standard & Poor’s 500 Index futures slid 0.9 percent. The euro sank 1 percent to $1.4118, the weakest since June 27. Oil fell 1.2 percent.
A meeting of European Union and European Commission chiefs today was enlarged amid speculation Italy may be engulfed by the crisis and divisions on how to structure aid for Greece. Alcoa Inc. (AA) will start the second-quarter earnings season today in the U.S., where data on July 8 showed the unemployment rate rose as hiring slowed. China’s consumer prices climbed the most in three years in June and exports increased the least since December, according to reports this weekend.
“Both Italy and Spain are starting to look more vulnerable,” said Niels From, chief analyst at Nordea Bank AB in Copenhagen. “The fear is that this is going to continue as the market starts focusing on the larger euro-region nations.”
Credit-default swaps protecting Italian bonds rose 28.5 basis points to an all-time high of 279.5, while contracts on Spain jumped 21 basis points, CMA prices show. The yield on Italy’s two-year bond climbed 35 basis points to 3.86 percent, and Spanish yields increased 27 basis points to 4.04 percent. Greek yields jumped 109 basis points to 31.47 percent, and its default swaps climbed 102 basis points.
The yield on the bund declined five basis points to 2.78 percent. The 10-year U.S. Treasury yield dropped to less than 3 percent for the first time since June 28.
European leaders are prepared to accept that Greece should default on some of its bonds as part of a new bailout plan for the country that would put its debt levels on a sustainable footing, the Financial Times reported, citing unidentified senior officials. The European Central Bank is seeking advice from a private lender on what to do in the event of a default in the euro area, Handelsblatt said, without citing anyone.
The EU has “got to put an end to the uncertainty surrounding Greece and the contagion impact that that is having,” Andrew Bosomworth, a fund manager at Pacific Investment Management Co., which runs the world’s biggest bond fund, said in an interview with Owen Thomas and Francine Lacqua on Bloomberg Television’s “Countdown.”
Dr. Pinna says:
This is today’s biggest economic news.
Every experienced reader knows that national economies are the result of the work and behavior of hundreds of millions of people.
A few politicians and a few hundred billion Euros is meaningless in the vast sea of Europe and the World where trillions of Euros and Dollars and other currencies are constantly floating like waves and currents everywhere.
From the perspective of the individual there is no way of controlling this immense sea.
All anyone can do is observe whether there is calm or a storm and in which direction the Tide is going.
In my opinion, the Tide is definitely going back to the Ocean. The Ocean is the SEVEN BILLION INHABITANTS of the planet.
Europe and the U.S. are going into that quagmire where the Westerners and Asians will meet and where they will compete for those currencies that allow them to buy the food and energy and other necessities of modern living.
The Southern Periphery of Europe is sinking fast.
If you travel through Europe today, you will find Chinese made souvenirs in Greece, Italy, Spain–everywhere.
One aspect of the future can easily be read already. What we do not know is how the Europeans and Americans will respond when the reality sinks in.