Banks weigh on FTSE 100 as Italian Spanish yields rise

More turbulence in European bond markets weighed on the FTSE 100 today, forcing banks lower and triggering a 1% drop in the UK Index.

With Italian 10-year bond yields racing back above the important 7% level again and Spanish 10-year bond yields pushing higher to 6.3%, this is heightening concerns that despite the political in-roads that have been made last week in Rome, the crisis remains at a point of escalation.

The escalatory moves in bond markets is convincing investors to shy away from risky asset classes and stocks which have particular exposures to sovereign debt, be it directly or indirectly. This is why much of today’s weakness is concentrated in the banks and insurance firms, with both sectors falling around 2% in trading and stock such as Barclays, Lloyds Banking Group and Royal Bank of Scotland the key drags on the FTSE 100 as a result.

As soon as Italian 10-year bond yields traded back above the 7% level, we saw a fresh selling wave hit the FTSE 100 and this was enough to push the UK index lower by 1% in trading, weighed by banks and insurance stock losses.

The feeling I get from investors right now is that with so much still at stake in the sovereign debt crisis, which is seemingly at the gates of Madrid now as much as entrenched inside the walls of Rome, investors are happy to sit on their cash and what cash that is at play is being invested into low risk asset classes.

The 7% push higher in the price of gold over the last three weeks where, for the same period the FTSE 100 has remained fairly flat, cements the view that free cash is not being invested into stocks at present and this means that the FTSE 100 sides with a negative bias at present, particularly with Italian and Spanish yields racing higher.

UK inflation dips to 5%
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Burberry shares lose 5% after update
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