Global stocks shaken by bond market gyrations

AP News
Posted: May 12, 2015 7:29 AM
Global stocks shaken by bond market gyrations

SEOUL, South Korea (AP) — Global stocks fell on Tuesday and Wall Street was expected to open lower as investors worried about a slump across bond markets and a rise in the cost of crude oil.

KEEPING SCORE: Britain's FTSE 100 fell 1.6 percent to 6,917.17 and Germany's DAX sank 1.9 percent to 11,451.14. France's CAC 40 dropped 1.5 percent to 4,952.96. Futures showed the U.S. was headed for a down day, with S&P 500 and Dow futures both down 0.6 percent.

VOLATILE BONDS: A sell-off in global bond markets, including U.S. Treasurys, has increasingly rattled investors since last week. Weakness in bond prices pushes up borrowing costs and can drag on economic activity. Federal Reserve chief Janet Yellen recently warned that long-term bond yields, which move in the opposite direction to bond prices, could quickly shoot higher once the Fed begins raising interest rates from a record low.

In Europe, bond yields had been depressed in recent weeks, with many touching record lows, by the European Central Bank's stimulus program, which entails buying bonds. Some experts say the bounce back was overdue. The German 10-year yield was up another 0.10 percentage points on Tuesday, to 0.72 percent, having traded as low as 0.08 percent last month.

ANALYSTS' TAKE: "Some of the recent volatility in bond markets has played a big role in the choppy price action in equities," IG strategist Stan Shamu said in a note.

Erik Nielsen, chief economist at UniCredit Research, says the current rise in bond yields should not worry investors too much in the longer term as the yields had previously dropped sharply. Many German government bonds, for example, were near zero or even negative — meaning investors were paying to lend the German government money. "Markets are - and will continue to be - very volatile," said Nielsen, but the economies of the U.S. and Europe remain on track. "If you keep your eyes on the key fundamentals, there'll still be lots of money to be made."

GREEK TALKS: Also overshadowing markets was a lack of a deal to get Greece more bailout loans. Eurozone official Jeroen Dijsselbloem said progress was made at Monday's meeting among finance ministers from eurozone countries but more time and effort was needed to reach a firm deal. Greece wants easier terms for the loans but faces an acute cash crunch that many experts think could see it default on its debts within weeks if it does not get more loans. A default could eventually even cause it to drop out of the euro bloc.

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ASIA SCORECARD: Japan's Nikkei 225 closed flat at 19,624.84 and South Korea's Kospi was also little changed at 2,096.77. Hong Kong's Hang Seng was down 1.1 percent to 27,407.18. But Australia's S&P/ ASX 200 rose 0.9 percent to 5,674.70 and China's Shanghai Composite index advanced 1.6 percent to 4,401.22.

CHINA CUT: Chinese stocks continued to get a boost from Sunday's interest rate cut, which was the third cut in half a year aimed at shoring up sputtering economic growth. The central bank's latest move came after trade data released on Friday showed imports and exports declined in April suggesting domestic and foreign demand are slowing. At the same time, inflation remains low, giving policymakers leeway to ease monetary policy as they strive to keep growth from falling below a 7 percent target.

ENERGY: Benchmark U.S. crude gained $1.16 to $60.41 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 14 cents to close at $59.25 a barrel on Monday.

CURRENCIES: The dollar fell to 119.97 yen from 120.16 yen in the previous trading session. The euro strengthened to $1.1243 from $1.1147.