Degree of calm returns to Italy's rattled bond market

EUR  USD

EUR USD

The S&P 500 and the Dow Jones Industrial Average registered their biggest one-day percentage drops in a month on Tuesday as political turmoil in Italy sparked concerns about the stability of the euro zone and shares of USA banks tumbled.

A power struggle between Italy's presidency and populist parties on Tuesday shook global markets and called the country's continued membership in the European single currency into question.

Italy has been unable to assemble a coalition government since inconclusive elections in March, which saw the rise of anti-establishment parties that support leaving the euro.

As a result, Well Street has taken a tumble.

As the end of its worst day since April 24 in terms of percentage, the Dow Jones index slipped almost 400 points, or 1.6%, depressed over political uncertainty in Italy and a new round of trade tensions between the USA and China.

MSCI's broadest index of Asia-Pacific shares outside Japan tumbled 1.5 percent, while Japan's Nikkei average sold off as much 1.9 percent to hit a six-week low. The euro sank to $1.1531, its lowest since July, from $1.1669. Ten-year Italian yields slipped 0.18 percentage points.

Italian 10-year government bond yields fell 10 bps to 3.02%, off four-year highs of 3.38%. It also rose against the Swiss franc and yen respectively.

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"Italian politics mask the underlying growing risks of a U.S".

U.S. -China trade tensions also added to the sombre mood in markets.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S. May 22, 2018.

The improved mood encouraged investors to sell USA and German bonds, reversing some of the 0.15-0.20 percentage point yield rises seen on Tuesday.

New jitters about the stability of the euro sent the currency's value against the dollar to its lowest level in nearly a year.

"It's not surprising that investors fled fragile emerging markets and southern Europe and sought safety in cash", said Yasuo Sakuma, chief investment officer at Libra Investments.

US crude futures retreated 0.4 percent to $66.46 per barrel, extended falls after declining for five consecutive sessions. Oil prices have slumped in the last week following reports that OPEC countries and Russian Federation could start pumping more oil soon.

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