Italy Fears Rattle World's Investors-wsj 11/10 : 공항(Panic)싱태에 빠진 이태리 국채시장과 향후 EU 국가부채 위기 전망

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By CHARLES FORELLE And TOM LAURICELLA

Investors stampeded out of Italian bonds Wednesday, sparking a broader decline across global markets driven by the prospect of the world's fourth-largest borrower losing access to financing.

The latest escalation fed fears that the euro-zone debt crisis is starting down its most perilous path: going from a storm raging among small countries at Europe's fringe to one that strikes a major economic power.

Italian bond yields jumped to staggering highs in a chilling replay of the market volatility that preceded bailouts of Greece, Ireland and Portugal. WSJ's Charles Forelle reports from Brussels.

From there, the risks to the global economy are broad. The European and U.S. financial systems are deeply intertwined, and Europe is a major export market for American companies.

As a consequence, the pain was widespread. U.S. and European stock indexes fell Wednesday. The Dow Jones Industrial Average dropped 389.24 points, or 3.2%, to 11780.94. The selloff continued Thursday in Asia where Hong Kong's Hang Seng stock index fell 4.6% in morning trading, dragged down by bank stocks, which dominate the index. Japan's benchmark Nikkei Stock Average was off 2% and South Korea's Kospi Composite was down more than 3%.

The turmoil in Italy—coming after its embattled prime minister promised to step down—reignited investors' fears about the future of the common currency. "Italy started us off, but everything subsequent to that is whether the euro zone is going to hold together," said Rick Bensignor, chief market strategist at Merlin Securities.

Among the hardest-hit stocks were bank and brokerage-house shares, because investors worried that investment exposures to Italy could ricochet across the Atlantic. The Financial Select Sector SPDR fund, which tracks a cross section of banks and other financial stocks, fell 5.4% Wednesday.

The next big test comes Thursday, in what in normal times would have been a routine sale of Italian treasury bills. But Wednesday's extraordinary market moves suggest buyers could be scarce. After that comes an Italian bond auction Monday.

"We are in a war economy," said Giovanni De Censi, chairman of Italy's Credito Valtellinese bank, in an interview with Italy's Radio 24 Wednesday. "I've never seen anything like it, liquidity has disappeared."

Italy's debt load of ?1.9 trillion ($2.6 trillion) is the second largest in Europe, behind Germany's, and the fourth largest in the world. Next year, more than ?300 billion of debt comes due, and Italy must continually tap markets to refinance it.

The immediate catalyst for Wednesday's market plunge, many market participants said, was a move by two major European clearinghouses to raise the amount of collateral investors must post when using Italian bonds to borrow money. That makes it less desirable for many banks to hold the bonds.

Stocks suffered their biggest one-day decline since mid-September as a surge in Italian bond yields and concerns about the euro zone pummeled bank stocks. Paul Vigna has details on The News Hub.

But the underlying worries run much deeper: Italy has a massive public-debt burden and a chaotic political system that is ill-prepared to solve it. European policy makers, who have long bickered over how to protect the Continent from an Italian-size problem, are now facing one with no solution in hand.

The market spectacle Wednesday was little short of extraordinary: a highly developed European nation whose bond market is the world's third largest saw its yields rocket up all along the curve. The benchmark 10-year bond started the day below 7% but jumped to around 7.5% before retreating slightly. The 2-year rose higher than the 10-year, and even the 12-month treasury bill shot up at one point above 9%—a sign of dangerous illiquidity in the market. Almost no one, it seemed, wanted to buy Italian debt. The strains rippled across other European bond markets, including France, where the gap between French and German 10-year debt rose to a euro-zone era record of 1.49 percentage points, according to Tradeweb.

Italy is under huge pressure to show that it can deliver enough long-term growth to work off a debt burden equal to 120% of annual gross domestic product. Prime Minister Silvio Berlusconi said he would step down only after the passing of a package of economic reforms seen as essential to regaining market confidence—but it is unclear whether the measures will be sufficient.

The selloff in Italian bonds, which gathered steam in recent weeks, has taken on a self-perpetuating nature. Investors once attracted to the higher yields now view the market as too unstable to buy. "Paradoxically, they would offer better value if they were yielding 4% or 5%," because that would reflect a more stable environment, said Jack Kelly, investment director for government bonds at Standard Life Investments in Edinburgh, Scotland.

Big investors felt comfortable owning big stakes of Italian debt in part because they knew they could sell without much difficulty. That has changed.

"It used to be one of the most liquid markets out there, but it isn't anymore," said Peter Schaffrik, head of European rates strategy at RBC Capital Markets in London. Not long ago, an investor had little problem buying or selling ?500 million of Italian bonds at a clip, he said. "Now it's difficult to trade more than ?50 million." The worsened trading conditions have led to more-exaggerated moves.

At its core, the euro-zone crisis is one of confidence. The big euro-zone countries, like most developed nations, run persistent budget deficits and thus need constant borrowing to keep themselves afloat.

But as investors reassessed their risk when the crisis began, they yanked money from the shakiest nations, first Greece, then Ireland, then Portugal. In each, the pattern was the same: A monthslong rise in bond yields, a fevered spike and then, eventually, a rescue.

Italian bond yields are on an eerily similar path. The benchmark 10-year bond yielded less than 5% for much of the first half of the year. It crossed that level in early summer, peaked above 6% in August, retreated after the European Central Bank stepped in to calm markets, then in recent weeks climbed back over 6% and, Wednesday, well above 7%.

Italy is less fundamentally broken than Greece, and its economy—at least in parts—is more dynamic than Portugal's. It also has a much smaller deficit than Greece, Portugal or Ireland, which helps it contain the rate of growth of its debt mountain.

"If we get some stability, it's a name that we want to buy. But you can't do that on any significant scale until you get some stability," said Rick Rieder, chief investment officer of BlackRock's Fundamental Fixed Income portfolios, which oversee $620 billion in assets.

Unlike Ireland and Portugal, Italy is far too large to be rescued by the euro zone's bailout fund. That means there is no backstop if Italy is unable to raise money in the markets.

Many observers have called for the ECB to play that role. It has been buying Italian bonds in the secondary market to try to tame yields—though that had little effect Wednesday.

The central bank is broadly opposed to financing euro-zone governments, and only reluctantly has waded into the secondary market. If the ECB stays on the sidelines, many analysts think the only solution is global, because Europe looks increasingly incapable of saving itself.

"When a crisis becomes regional to the extent that this one has, regional financial arrangements no longer work," says Alessandro Leipold, a former top International Monetary Fund official who is now chief economist of the Lisbon Council, a Brussels think tank. "Everything becomes cross contaminated."

—Alessandra Galloni, Christopher Emsden, Matt Phillips and Todd Buell contributed to this article.