London markets joined the rest of Europe in slumping Wednesday as spiking sovereign bond yields proved more attractive than stocks.
The U.K.’s FTSE 100 UKX, -1.29% declined 1.4% to 7,166.8 following a nearly flat close Tuesday down 0.1%.
The pound GBPUSD, -0.0395% shrank 0.2% to $1.2636 after ending Tuesday essentially flat.
Bond yields on U.S. Treasurys and other safe assets are swooning as investors positioned themselves for the potential of worsening economic conditions. The U.S. 10 year bond’s yield fell to its lowest level in nearly two years, falling three basis points to 2.23%. The move has been viewed as a flight to quality assets in preparation for a possible downturn, though macroeconomic data has turned broadly positive in both Europe and America.
Italy’s sovereign bond yields eased slightly from the open, edging down nearly a basis point as right-wing anti-European Deputy Prime Minister Matteo Salvini geared up for a fight with the European Commission over budgets. Italy’s 10-year bond yielded 2.64%, TMBMKIT-10Y, -2.49%
The contest to replace outgoing U.K. Prime Minister Theresa May as Conservative party leader is under way, and the political uncertainty has drawn fresh attention to the opposition Labour Party’s plans to pay investors below market value if they make good on their 2017 manifesto plan to nationalize energy and water utilities. Shares in United Utilities Group PLCUU, +0.88% and Severn Trent PLC SVT, +1.13% are both up 0.9%. Energy utility National Grid PLC NG, +1.07% is also 0.5% higher.
Provident Financial PLC PFG, -2.37% shares were down nearly 2% on news that regulators were weighing whether to investigate a planned hostile takeover of the subprime home lender by Non-Standard Finance PLC NSF, +0.73% The Competition and Markets Authority will decide by July 23 whether to move forward.
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