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Stocks Drop as Italy’s Political Anxiety Spills Across Its Borders

But the uncertainty in Italy reverberated across the continent on Tuesday. The main stock indexes in London, Frankfurt and Paris dropped. In a sign that investors were looking for safer assets, the yields on 10-year bonds from Britain, France and Germany all fell.

In the United States, the yield on the 10-year Treasury note also fell to 2.80 percent as investors flocked to the safety of American sovereign debt. Yields on those notes had topped 3 percent in recent weeks on optimism about American economic growth and expectations of ongoing rate increases from the Federal Reserve.

The decline in Treasury bond yields — which serve as benchmarks for private lending rates — weighed on shares of financial institutions. The financial sector was the worst performing part of the S.&P. 500-stock index, dropping by more than 3 percent, as falling long-term bond yields fanned concerns about crimped bank profitability.

Stocks Drop as Italy’s Political Anxiety Spills Across Its Borders
Stocks Drop as Italy’s Political Anxiety Spills Across Its Borders

In a note to clients, bond market analysts from BMO Capital Markets thought that the shift toward investor demand for safety would probably last.

“The cracks that we’ve seen in risk appetite are only likely to widen,” they wrote.

Industrial stocks also dragged on markets in the United States, as trade tensions with China continue to create ongoing uncertainties for manufacturers.

The Trump administration said on Tuesday that it would go forward with punitive trade-related measures on China in the next month, including levying a tariff of 25 percent on $50 billion of goods imported from China.

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