Wall Street and Asia fall sharply as investors fear new elections could bring further uncertainty to Italy

Italian bonds, which suffered heavy selling on Tuesday, appear to have recovered slightly.

The yield – which moves inversely to the actual bond price – on two year bills has dipped 33 basis points to 2.095% having hit five year highs. The ten year yield is down 12 basis points at 2.98%.

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Fears over the political chaos in Italy spread to the US and Asia overnight, and European markets are expected to open lower as a consequence.

Related: Asian shares and euro fall sharply as Italy fears spread to global markets

Big banks dropped the hardest, struck by a double whammy of investors trying to suss out which lenders are capable of surviving a fresh eurozone storm; in addition to being hit by lower US bond yields as investors brought into safe haven treasuries. A lower yield environment is considered less profitable for the banks, a sector which dived as the US 10-year bond enjoyed its biggest rally since the Brexit referendum in 2016, sending yields 15 basis points lower to 2.78. The latest action has put the recent 4 year high of 3.08% 10yr yields into the history books, at least for the time being.

The S&P closed 1.2% lower whilst the financial sector shed 3.4%, as the likes of Citibank, JP Morgan, Bank of America and Morgan Stanley closed 4% lower.

[Markets face] the prospect of elevated trade tensions after President Trump announced that the US would be proceeding with $50bn worth of tariffs on Chinese in imports. With EU exemptions on US tariffs also due to expire this Friday, markets are likely to find it difficult to catch a break today.

European Opening Calls:#FTSE 7615 -0.23%#DAX 12644 -0.18%#CAC 5393 -0.82%#MIB 21140 -0.99%#IBEX 9478 -0.45%

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Read More European markets set to open lower on Italian political turmoil – business live

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