September 22, 2023

Stocks Slip as Italian and Spanish Bond Yields Rise

Mario Monti, an economist with a long résumé that includes high-level posts with the European Union, was appointed as Italian prime minister over the weekend after Silvio Berlusconi stepped down. In Athens, Lucas Papademos, a former central banker, was beginning to put his stamp on the Greek government.

The changes of government were intended in part to demonstrate to investors that embattled euro zone nations were serious about solving their problems. While European stocks rallied in early trading, the euphoria was short-lived.

In early afternoon on Wall Street, the Standard Poor’s 500-stock index was down 1 percent, and the Dow Jones industrial average was 0.7 percent lower. The Nasdaq composite was down 0.8 percent. On Friday the S. P. gained nearly 2 percent.

In Europe, the Euro Stoxx 50 index, a barometer of euro zone blue chips, fell 1.6 percent, while the FTSE 100 index in London was down 0.5 percent.

The market’s skepticism was reflected in the outcome of the Italian bond auction. The Italian Treasury on Monday sold 3 billion euros, or $4.1 billion, of five-year bonds priced to yield 6.3 percent — up nearly a full percentage point from the yield it paid at a similar auction last month, and the most Italy has had to pay to move such securities since June 1997, according to Bloomberg News.

On the secondary market, the yield on Italy’s 10-year bonds, which had fallen back at the end of last week after breaching the critical 7 percent threshold, rose more than 20 basis points to near 6.7 percent, a level that makes it increasingly difficult for the country to straighten out its finances amid anemic economic growth. (A basis point is one-hundredth of a percent.)

Ten-year bond yields in Spain, another troubled euro zone economy, rose above 6 percent for the first time since August, when a spike in borrowing costs first prompted the European Central Bank to intervene to push down yields by buying Spanish bonds.

The sharp move upward in the Spanish yield might be a sign of things to come, analysts said. The Spanish economy may be contracting in the current quarter, worsening Spain’s budget deficit and the position of its banks.

The country holds elections on Sunday, but whoever takes over power will have little choice but to introduce more austerity measures, analysts said.

Despite the European sovereign debt crisis and the threat it poses to economic growth globally, some analysts believe the United States markets at least are poised for a rebound.

Jeffrey D. Saut, chief investment strategist at Raymond James in St. Petersburg, Fla., noted that for the 445 of the S. P. 500 companies that had reported results through Thursday, profits were up 22 percent from a year earlier, while revenues were up almost 12 percent.

Selling on Wall Street is unlikely to go very far “because earnings are just too good,” he said. Assuming the United States does not dip into recession, “I think you’ll see people outside of the United States shoveling money into stocks in this country.”

The dollar rose against most other major currencies. The euro fell to $1.3622 from $1.3751 late Friday in New York, while the British pound fell to $1.5899 from $1.6066. The dollar rose to 0.9070 Swiss francs from 0.8999 francs. But the dollar fell against its Japanese counterpart, slipping to 77.01 yen from 77.17 yen.

Asian shares were mostly higher. The Tokyo benchmark Nikkei 225 stock average rose 1.1 percent. The Sydney market index S.P./ASX 200 rose 0.2 percent, and in Hong Kong, the Hang Seng index gained 1.9 percent.

Graham Bowley contributed reporting.

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