The potential unprecedented tax on deposits is raising concern among holders of senior bank bonds that they’ll be made to take losses should another country need rescuing. The Markit iTraxx Financial Index of credit-default swaps insuring senior debt of 25 banks and insurers rose as much as 19 basis points to 162 basis points yesterday, according to prices compiled by Bloomberg. That’s the biggest jump since Aug. 2, before the European Central Bank steadied markets by announcing its bond- buying program, and the gauge is now at the highest in almost three weeks.
Banks in the south of Europe, whose governments are most in need of international cash to meet their debt obligations, bore the brunt of the increase in swap prices. Contracts on Milan- based UniCredit SpA climbed as much as 23 basis points yesterday and were up 13 basis points today at 353, the highest since March 4, prices compiled by Bloomberg show. Banco Santander SA, Spain’s biggest lender, surged as much as 21 basis points yesterday and today rose 13 to 279.
The “one-off” tax on deposits is a situation unique to Cyprus, Simon O’Connor, spokesman for European Union Economic and Monetary Affairs Commissioner Olli Rehn, told reporters.
Spain’s 10-year bond yield rose eight basis points to 5.04% and Italy’s added nine points to 4.73%. While the five-day decline in Spanish bonds is the longest run since July, yields climbed no higher than 5.04% today, after reaching 5.08% yesterday. Yields surged 74 points in Greece and 21 points in Portugal, while falling at least two points for Switzerland, Germany, Denmark and the U.K.
“The risks over the coming days still merit caution, given the potential for the Cyprus mess to shortly morph into wider concerns,” Ciaran O’Hagan, head of European rates strategy at Societe Generale SA in Paris, said in an e-mailed note. “The euro area has created new precedents that are inconsistent with its aspirations for banking, and monetary, union.”
Rio Tinto Group sank 5.2%, leading basic-resources producers lower, as Goldman Sachs downgraded the world’s second- biggest mining company. ThyssenKrupp AG plunged 5.5% after Handelsblatt reported the German steelmaker is considering raising capital. Cie. Financiere Richemont SA fell 4.3% as an investor sold a stake of about $570 million in the second- largest maker of luxury goods.
Greece’s ASE Index tumbled 3.9% to its lowest level of the year, with National Bank of Greece SA sliding almost 15%, as the market opened following yesterday’s national holiday. Equity trading in Cyprus won’t start until the day after tomorrow.
The S&P GSCI gauge of 24 commodities dropped 1.1%, extending yesterday’s 0.3% decline. Gasoline fell 2.2% to $3.0597 a gallon and crude oil slid 1.7% to $92.16 a barrel. Corn and wheat futures rose as cold, wet weather in the U.S. Midwest hindered fieldwork prior to crop planting..
The MSCI Emerging Markets Index fell 0.5% for a seventh straight loss, the longest losing streak in four months. Benchmark gauges in Brazil, the Philippines, Thailand and Poland dropped more than 1%, while stocks rebounded in Shanghai, Taiwan and South Korea. Vale SA, the world’s biggest iron-ore producer, fell to a six-month low Goldman Sachs lowered its estimate for the value of the material and cut the price target on the company’s American depositary receipts.
India’s Sensex index sank 1.5%. The Dravida Munnetra Kazhagam, the largest of the nine partners in the ruling alliance, said it would end backing for the federal government following a dispute over alleged war crimes in Sri Lanka.