Italian, Spanish Bonds Fall on Bailout Concern

By Stephen Kirkland - Oct 31, 2011 7:24 PM GMT+0700
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Italian five-year yields rose 12 basis points to 5.87 percent at 10:31 a.m. in London. Photographer: Victor Sokolowicz/Bloomberg

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Oct. 31 (Bloomberg) -- Naomi Fink, head of Japan strategy at Jefferies Japan Ltd., discusses Japan's intervention in markets to weaken its currency and the impact of the yen's appreciation on Japanese corporations and trade. Fink speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Italian and Spanish bonds fell, while stocks retreated from a three-month high on concern European leaders will struggle to raise funds to contain the region’s debt crisis. The yen sank from a post-World War II record against the dollar after Japan intervened in the market.

Italian five-year yields rose 24 basis points to 5.99 percent, the highest since 1997, at 8:22 a.m. in New York. German bunds and U.S. Treasuries advanced. The yen tumbled as much as 4.9 percent against the dollar, the biggest drop in three years. The MSCI All-Country World Index lost 1.1 percent, trimming its record monthly rally to 12 percent, and Standard & Poor’s 500 Index futures slipped 1 percent. Copper and silver slid 2.6 percent.

China can’t play the role of “savior,” the official Xinhua news agency said yesterday after European leaders agreed last week to boost their bailout fund. Japanese Finance Minister Jun Azumi said today the government took unilateral steps to weaken the yen. Group of 20 leaders will gather Nov. 3-4 in Cannes, France, while central bankers from Australia, the U.S. and Europe will hold interest-rate policy meetings this week.

“Italian yield spreads suggest bond markets seem to be quite cynical about the latest deal,” said John Stopford, the head of fixed income at Investec Asset Management in London. “Although the package may be seen as a step forward, the lack of details at this point worried investors. The market is obviously concerned about the amount of borrowing that Italy has to do, and the limited firepower that exists to help it.”

Italian five-year yields earlier climbed even after three people said the European Central Bank bought the nation’s debt. Italian 10-year yields added 15 basis points to 6.18 percent, widening the yield difference over benchmark German bunds to 408 basis points. It reached a record 4.16 percent on Aug. 5.

Bond Risk

The Spanish-German 10-year yield spread widened 20 basis points to 353 basis points. German 10-year yields dropped eight basis points to 2.10 percent, while equivalent-maturity Treasury yields were nine basis points lower at 2.23 percent. The cost of insuring European government debt rose, with credit-default swaps tied to Italy climbing 29 basis points to 434 and the Markit iTraxx SovX Western Europe Index of 15 governments increasing 12 basis points to 302.

The Stoxx Europe 600 Index retreated 1.1 percent as 16 of the 19 industry groups declined. Banks led losses with BNP Paribas SA, Societe Generale SA and Deutsche Bank AG dropping more than 5 percent. Vestas Wind Systems A/S tumbled 21 percent, the wind-turbine maker’s biggest drop in 14 months, after cutting its 2011 forecasts for revenue and margins. More than half of the 145 companies in the Stoxx 600 that have released earnings since Oct. 11 beat analysts’ profit estimates, according to data compiled by Bloomberg.

Biggest Gain

The decline in S&P 500 futures indicated the benchmark measure will pare its biggest monthly gain since 1974. Seven companies on the S&P 500, including Loews Corp. and Anadarko Petroleum Corp. report their earnings today. Almost three- quarters of the 220 companies that have posted results since Oct. 11 have exceeded analysts’ forecasts.

The yen declined versus all of the more than 150 currencies tracked by Bloomberg. It was 2.7 percent weaker at 77.89 per dollar and 1.7 percent lower against the euro at 109.10. The euro declined 1 percent to $1.4007. The Dollar Index climbed 1.2 percent.

Silver fell for the first time in seven sessions, and gold dropped 1.2 percent to $1,723.48 an ounce. Natural gas climbed 0.9 percent on speculation cold weather in the U.S. will boost demand for the fuel. Lead declined 3.7 percent. Oil lost 0.6 percent to $92.79 a barrel.

The MSCI Emerging Markets Index declined for the first time in seven days, falling 0.8 percent and paring its October rally to 14 percent. The Hang Seng China Enterprises Index dropped 1.1 percent, led by property-related companies after Premier Wen Jiabao said the government should “firmly” maintain real- estate curbs. Benchmark equity indexes in Poland, the Czech Republic and South Africa retreated more than 1 percent, while the Russian ruble weakened 1.4 percent versus the dollar.

To contact the reporter on this story: Stephen Kirkland in London at skirkland@bloomberg.net

To contact the editor responsible for this story: Stuart Wallace at Swallace6@bloomberg.net