S&P 500 rises above record close as euro gains with Italy bonds

Italian Government

Italian Prime Minister Enrico Letta may finish installing a government today nine weeks after voters rejected the country’s budget-cutting course. Italy sold 6 billion euros ($7.9 billion) of five- and 10-year bonds at the lowest yield since 2010. Italy sold the 2018 notes at an average yield of 2.84%, and 3 billion euros of 2023 bonds to yield 3.94%.

“We’ve seen the impact of Italy on the bond yields and it’s having a relief effect on the euro too,” said Jane Foley, senior currency strategist at Rabobank International in London. “Given the huge amount of obstacles this government has got to get over I think that the relief that we are seeing has been amplified because the market is very short euros.”

The new Italian government pledges to dismantle parts of the budget-cutting project undertaken by ousted premier Mario Monti. German Finance Minister Wolfgang Schaeuble will travel to Spain today to unveil a plan aimed at spurring investment in Spanish companies.

$20 Trillion

At a time when politicians are squeezing budgets to cut borrowing, the bond market is clamoring for more debt, pushing yields on almost $20 trillion of government securities to less than 1%.

The average yield to maturity for the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index fell to a record low 1.34% last week from 3.28% five years ago. Even though the amount of bonds in the index has more than doubled to $23 trillion -- bigger than the gross domestic product of the U.S. and China combined -- countries from Germany to Rwanda sold debt in the past month at their lowest yields.

The S&P GSCI Index rallied 1% as 16 of its 24 commodities advanced. Gold climbed 0.4% to $1,467.67 an ounce, paring its monthly decline to 8.2%. West Texas Intermediate crude added 1.2% to $94.12 a barrel.

The yen weakened against 14 of 16 major peers and traded little changed versus the U.S. dollar after climbing 0.7% earlier. The dollar weakened against all 16 major counterparts except the yen. New Zealand’s dollar strengthened against all but one of its 16 major peers, climbing 0.9% to 85.59 U.S. cents.

Most emerging-market stocks rose. The MSCI Emerging Markets Index added 0.4%, helped by the Sensex in India, which climbed 0.5%. The FTSE/JSE Africa All Share Index dropped 0.2%.

The Hang Seng China Enterprises Index in Hong Kong fell 0.5%, declining for the first time in four days, as slower growth in Chinese industrial companies’ profits added to signs the world’s No. 2 economy is losing steam.

Bloomberg News

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