Spanish and Italian yields increase to multi-month highs

Spanish and Italian bond yields sprinted higher as the European Crisis came back to the markets. Despite Spain announcing further budget cuts of €10 billion in the education and healthcare sectors, Spanish borrowing costs surged on the 10-year bond yield, testing the 5.99% mark, which is the highest level since November 2011, exceeding last week’s high of 5.74%. The 10 -year Italian government bond yields were not far behind at 5.68%. Both countries' stocks extended losses with the Spanish IBEX 35 dropping by around 3%, while the Italian bourse fell more than 4%.

Worse than expected labour market kept supporting the USD due to its safe haven status. Gold and other precious metals also gained in the region of 1.2%. On a softer note, China’s trade balance went back into surplus, giving confidence in global demand, however the main worries in the Eurozone continue to lead the way.

UK 10 year government bond yields dropped to 2.01% due to investor demand. The reduced cost of borrowing is not only beneficial for the government but it also supports the argument that the UK is on a much better footing than its member states. 

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