Spanish yields soar as debt crisis fears return

European markets dived yesterday as Spain and Italy came under renewed pressure amid soaring government bond yields.

The yield on a 10-year Italian bond had risen 24 basis points to 5.7% by the close in London, while the Spanish equivalent touched the 6% mark.

Italy’s FTSE MIB index was down more than 5% at the close as fears over the eurozone debt crisis returned to markets while the Spanish index hit a three-year low.

Markets are concerned Spain could be the next eurozone nation to need a bailout, as both Italy and Spain look to implement tough austerity measures which will hamper growth.

German bond yields dipped below those of Japan for the first time ever as investors considered the likelihood of another round of stimulus in Europe.

The payout on two-year bunds fell to 0.109%, below that of even Japan which yields 0.111% on its two-year note.

Meanwhile London’s FTSE 100 index slumped to its lowest levels in 2012 on Tuesday as investors had a four-day weekend to digest a gloomy US jobs report out on Friday, and is expected to open lower today.

The UK’s leading index lost 128 points to finish at 5,596. The last time it closed under that mark was on 30 December when it finished at 5,572.

There were signs the recovery in the US employment market is running out of steam, as US non-farm payrolls data for March disappointed.

The US generated 120,000 jobs (seasonally adjusted) in March, well below the 200,000 expected by the market. Private sector payrolls rose by 121,000 while government payrolls were more or less unchanged.

The unemployment rate dipped to 8.2% from 8.3% in February, but the decline was entirely down to people taking themselves out of the recruitment market.

US markets slumped overnight, with the Dow falling 1.65% to 12,716 and the S&P 500 down 1.71% to 1,359.

China’s trade balance came in at a surplus of $5.35bn in March, compared with a deficit of $31.48bn the month before, as exports grew by 8.9% year-on-year (consensus: +7%).

However, imports increased by 5.3% (consensus: +9%), down from the near-40% jump in February, spreading fears of a slowdown in domestic demand.

Asian markets also ended the session lower, with the Nikkei 225 down 0.83% to 9,459 and the Hang Seng losing 1.23% to close at 20,106.

This article first appeared in Investment Week. Additional reporting by ShareCast

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