S&P 500 Falls as Euro Drops to Four-Month Low; Italy Bond

Treasuries rallied and the euro weakened to a four-month low against the dollar, while Italian and Spanish bonds slumped, as concern about Europe’s debt crisis deepened. Most U.S. stocks fell, even as the Standard & Poor’s 500 Index pared a drop of as much as 0.8 percent.

Ten-year Treasury yields slid seven basis points to a three-week low of 1.84 percent while Italy’s 10-year yield jumped 21 basis points to 4.78 percent. The S&P 500 slipped less than 0.1 percent to 1,562.85 and the Stoxx Europe 600 Index lost 0.5 percent. The euro weakened below $1.28 for the first time since November while the pound fell as a report confirmed the U.K. economy shrank last quarter. Brazil’s real halted a six-day slump as the central bank took steps to bolster the currency.

The leader of Italy’s Democratic Party ruled out the possibility of a broad coalition government, while banks in Cyprus planned to open for six hours tomorrow with capital restrictions in place after shutting for almost two weeks as the nation faced financial collapse. Fewer Americans signed contracts to purchase previously owned homes in February as limited inventory and access to credit held back a more robust recovery in housing.

“It’s concern over Europe that’s driving the better bid to Treasuries,” said David Coard, head of fixed-income trading in New York at Williams Capital Group, a brokerage for institutional investors. “It’s the good old flight-to-quality bid emanating principally from Europe.”

Rates on two-year Treasury notes fell less than one basis point to 0.24 percent, while 30-year bond rates lost six points to 3.09 percent.

Treasury Auction

U.S. five-year note yields tumbled four points to 0.73 percent, almost the lowest this year, even as the U.S. sold $35 billion of the securities in the second of three note sales this week totaling $99 billion. The report showing a 0.4 percent drop in pending sales of homes fueled wagers the Federal Reserve will keep interest rates at virtually zero.

Financial firms helped lead losses in U.S. stocks, with JPMorgan Chase & Co. and Wells Fargo & Co. losing at least 0.9 percent to pace declines. Cliffs Natural Resources Inc. tumbled 14 percent to a four-year low after Morgan Stanley downgraded the shares and said new supply in North America may reduce the price of iron ore. Dollar General Corp. lost 2.4 after it said 30 million shares will be sold in a secondary offering.

Near Record

The S&P 500 briefly erased losses in the final hour of the session to trade about one point below its 2007 record close of 1,565.15. The index is up 3.2 percent in March and almost 10 percent so far in 2013. The benchmark gauge has traded above 1,560 on seven days since March 14, only to fall short of the record each time.

The events in Cyprus are “a reminder that Europe has still very slow growth and the banking system has a lot of issues,” John Fox, a Cobleskill, New York-based fund manager and director of research at Fenimore Asset Management Inc., which manages about $1.5 billion, said over the phone. “Stocks aren’t going to go up 7 percent a month,” he said. “We really came out of the gate fast. There’s going to be corrections.”

The U.S. economy is facing the heaviest burden yet from federal spending cuts and tax increases, Federal Reserve Bank of New York President William C. Dudley said yesterday.

“Over the next three-to-six months, if the U.S. economy continues to show signs of improvement that will be very, very important,” Dudley said in an interview with CBS News that was posted today on its website. “The fiscal drag is at its most intense point today. If the economy can sort of power through that, I would actually think the second half of the year and 2014 would be better.”

Fed Watch

Two regional Fed presidents, Eric Rosengren of Boston and Chicago’s Charles Evans, said they want the central bank to keep buying bonds through the end of 2013, while a third official said the central bank isn’t doing enough to spur economic growth.

The Stoxx 600 erased an earlier advance as insurance, telecommunications and automobile companies led the equity benchmark lower. TDC A/S retreated 1.6 percent as the Danish phone operator’s private-equity owner put a 6.8 percent stake on sale. Safran SA dropped 1.5 percent as France sold about 13 million shares in Europe’s second-biggest maker of aircraft engines, according to the country’s finance ministry.

Mediaset SpA rallied 5.3 percent after reporting sales for 2012 that beat analysts’ estimates. The Italian broadcaster controlled by former Italian Prime Minister Silvio Berlusconi also said that it won’t pay a dividend for the first time.

Capital Controls

In Cyprus, capital controls will include a 300-euro ($383) daily limit on withdrawals and will restrict transfers to accounts outside Cyprus, according to a decree from the Central Bank of Cyprus. The decree will remain valid for four days, according to an e-mailed statement from the bank today.

The bailout in Cyprus that imposes levies on bank deposits is tailor-made for the country’s situation and is not a template for other nations, according to a document agreed on yesterday by representatives of euro-area finance ministries.

The statement pushed back against the impression given by Dutch Finance Minister Jeroen Dijsselbloem that spurred concern deposits in other nations may be vulnerable to similar so-called bail-ins. Banks in Portugal, Spain and Italy may come under funding pressure after the Cyprus rescue, the Institute of International Finance said in a report today.

‘Risk Premia’

“The precedent set by Cyprus and the political uncertainty in Italy mean that risk premia in the euro region will continue to go wider,” said Adam Cole, head of Group of 10 currency strategy in London at Royal Bank of Canada. “The risk of the bail-in of depositors in a future banking crisis has increased and market prices have to reflect that.”

The euro weakened against 15 of its 16 major peers and traded below its 200-day moving average for a third day against the dollar. The dollar strengthened against 13 of 16 counterparts. The pound dropped 0.2 percent to $1.5128. GDP fell 0.3 percent, the same as previously estimated by the Office for National Statistics.

Sweden’s krona strengthened for a third day against the euro, appreciating 0.2 percent, as data showed consumer confidence rose more than economists estimated this month and retail sales jumped in February.

Italian five-year yields climbed 25 basis points, the most in a month, to 3.58 percent. Italian 10-year yields extended their first quarterly increase since June as demand fell when the Treasury sold 6.91 billion euros ($8.84 billion) of debt at an auction today. Democratic Party leader Pier Luigi Bersani said there was no possibility of a broad coalition to end the deadlock caused by last month’s elections.

Spain Bonds

Spanish bonds fell with their Italian counterparts, pushing the 10-year yield up 14 basis points to 5.08 percent. The yield on benchmark 10-year German bunds fell eight basis points to 1.27 percent as investors sought Europe’s safest fixed-income assets.

Spain revised up the first estimate of its 2012 budget deficit after Eurostat requested it to change the way it computes tax claims. The budget shortfall was 6.98 percent of gross domestic product last year instead of the previously estimated 6.74 percent, Deputy Budget Minister Marta Fernandez Curras told reporters in Madrid today.

The cost of insuring against losses on senior European bank bonds climbed for a ninth day, with the Market iTraxx Financial index of credit-default swaps linked to 25 banks and insurers climbing 10 basis points to 200.


Natural gas, gas oil and live cattle climbed at least 1.5 percent to led gains in commodities that sent the S&P GSCI Index up 0.5 percent.

Gold futures rose for the first time in four sessions, climbing 0.6 percent to $1,607.20 an ounce, on speculation that the Fed will maintain monetary stimulus. West Texas Intermediate oil advanced 0.2 percent to a five-week high of $96.58 a barrel after government data showed U.S. refineries boosted operating rates.

The MSCI Emerging Markets Index added 0.4 percent for a third straight gain. The Philippine Stock Exchange Index rallied 2.7 percent to a record after Fitch Ratings gave the country its first investment-grade debt rating. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong increased 1 percent as Chinese banks reported lower bad-loan ratios.

Brazil’s real rose 0.3 percent versus the dollar, rising for the first time in seven days, after the central bank announced an offering of foreign-exchange swaps to limit the currency’s decline. The central bank announced an auction of 20,000 currency swap contracts in the first offering of its kind since Jan. 28.

Before it's here, it's on the Bloomberg Terminal.