Stocks, Euro Sink as Italy Yields Reach Record

By Stephen Kirkland - Nov 9, 2011 9:31 PM GMT+0700

Stocks and the euro plunged as Italian bond yields surged to euro-era records after a clearing firm increased the deposits it demands for trading the nation’s securities, intensifying the European credit crisis. The dollar strengthened and Treasuries surged.

The Standard & Poor’s 500 Index lost 1.3 percent to 1,259.73 at 9:31 a.m. in New York and the Stoxx Europe 600 Index slid 1.8 percent. The yield on Italy’s five-year note jumped 62 basis points to 7.50 percent. The euro weakened 1.7 percent to $1.3605, driving the Dollar Index up 1.4 percent. The yield on 10-year Treasuries sank 11 basis points to 1.97 percent. Oil fell from a three-month high to help lead commodities lower.

LCH Clearnet SA, a clearing house that guarantees investors’ trades are completed, raised the deposit it demands for trading Italian government bonds and index-linked securities. Italian Prime Minister Silvio Berlusconi agreed to step down after the approval of an austerity plan to tame the euro-region’s second-biggest debt, while Greek Prime Minister George Papandreou’s talks on forming an interim government dragged into a third day.

“There’s so much uncertainty, who’s going to take over, when are they going to take over, we just don’t know.” Gary Jenkins, the head of fixed income at Evolution Securities Ltd. in London, told Maryam Nemazee on Bloomberg Television’s “The Pulse” today. The market wants “a government in place as soon as possible to get the austerity measures passed. But they might not get what they want.”

Rally Halted

The S&P 500 snapped a two-day advance. Berlusconi’s offer to resign yesterday triggered an afternoon rally that sent the index up 1.2 percent amid optimism a new Italian leader would be more successful in taming the debt crisis.

General Motors Co. fell after rescinding its target for break-even results in Europe, a region where it hasn’t turned an annual profit in more than a decade. Adobe Systems Inc. tumbled after the largest maker of graphic-design software cut its earnings forecast.

More than 10 shares fell for every one that gained in the Stoxx 600 and all 19 industry groups retreated. Admiral Group Plc plunged 27 percent, the most since its initial public offering in 2004, as the U.K. car insurer said a period of higher-than-expected personal injury claims would lower reserves. Mediaset SpA, the broadcaster controlled by Berlusconi, fell 8.5 percent.

The yield on Italy’s 10-year bond rose 48 basis points to 7.25 percent, and the two-year yield surged 73 basis points to 7.11 percent. Credit-default swaps on Italy’s government bonds jumped 38 basis points to a record 562, according to CMA prices.

Deposit Factor

LCH Clearnet increased the so-called deposit factor for Italian bonds due in seven-to-10 years to 11.65 percent, the French unit of the clearinghouse said in a document on its website dated yesterday. That compares with a charge of 6.65 percent announced on Oct. 7. The additional costs will be applied from close-of-day positions today, LCH said.

New York oil dropped 1.4 percent to $95.49 a barrel, the first decline in six sessions. Zinc slumped for the first day this week, and copper declined for a fourth day, losing 1.3 percent. All 24 commodities tracked by the S&P GSCI Index declined, sending the gauge down 0.9 percent.

The MSCI Emerging Markets Index fell for the first time in four days, losing 0.8 percent. Benchmark gauges in Brazil, Russia, Poland and Hungary declined more than 2 percent. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong climbed 2.2 percent.

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

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net