An exchange traded fund tracking Italy was set for a lower open in the U.S. on Thursday as the country’s FTSE MIB Index fell over 2% after Prime Minister Silvio Berlusconi tried to calm markets.
In Spain, the Treasury sold bonds at higher yields but there was solid demand, the Associated Press reported. Still, the debt contagion is spreading to Eurozone’s third and fourth largest economies.
Yields on Spanish and Italian 10-year bonds have crossed over 6%, report Victor Mallet and RIchard Milne for Financial Times. Higher yields means that the countries will have to pay more to refinance old debt and raise new money. [Italy, Spain ETFs Fall Over 15% in a Month.]
Observers believe that the added stress may force the countries to line up behind Greece, Ireland and Portugal in accepting a rescue plan.
“There’s a kind of acceleration process going on,” said Edward Hugh, a Barcelona-based economist, in the report. “As the ship fills up with water, it gets more unstable.”
“It’s starting to be a little bit questionable when yields are well in excess of 6%,” commented Elisabeth Afseth, Evolution securities fixed-income analyst. “For the other peripheral countries, 7% has been seen as the upper limit.”
Weaker economic indicators in the U.S. and Europe have diminished the risk appetite for bonds in riskier Eurozone countries, The Wall Street Journal reports. The declining investor interest in Spain’s and Italy’s bonds may disrupt the ability for the two countries to finance their growing budget deficits.