Stocks sank, while the euro touched a ten-year low versus the yen and a six-month low against the dollar, as concern grew about Greece’s debt crisis. European bank and sovereign credit risk reached all-time highs as 10-year Treasury yields slid to a record. Oil fell 2 percent. The MSCI All-Country World Index retreated 2.9 percent and the Standard & Poor’s 500 Index slipped 2.7 percent to 1,154.23 at the 4 p.m. close in New York, wiping out a weekly gain. The euro sank as much as 2.1 percent to 105.3 yen and fell 1.8 percent to $1.3627 before trimming losses. Ten-year Treasury yields slid as low as 1.89 percent. Credit-default swaps signaled a more than 90 percent probability Greece will default. Stocks extended losses as three German officials said Chancellor Angela Merkel’s government is preparing plans to shore up banks in the event that Greece defaults. The European Central Bank said Juergen Stark resigned from the executive board, suggesting policy makers are divided over how to fight the debt crisis. U.S. President Barack Obama called on Congress last night to pass a $447 billion plan to boost employment after jobs growth stalled last month. “There’s that nagging thought that we can continue to have a downward spiral in Europe,” James Dunigan, chief investment officer in Philadelphia for PNC Wealth Management, said in a telephone interview. The firm oversees $109 billion
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Saturday, September 10, 2011
Stocks sank, while the euro touched a ten-year low versus the yen and a six-month low against the dollar, as concern grew about Greece’s debt crisis. European bank and sovereign credit risk reached all-time highs as 10-year Treasury yields slid to a record. Oil fell 2 percent. The MSCI All-Country World Index retreated 2.9 percent and the Standard & Poor’s 500 Index slipped 2.7 percent to 1,154.23 at the 4 p.m. close in New York, wiping out a weekly gain. The euro sank as much as 2.1 percent to 105.3 yen and fell 1.8 percent to $1.3627 before trimming losses. Ten-year Treasury yields slid as low as 1.89 percent. Credit-default swaps signaled a more than 90 percent probability Greece will default. Stocks extended losses as three German officials said Chancellor Angela Merkel’s government is preparing plans to shore up banks in the event that Greece defaults. The European Central Bank said Juergen Stark resigned from the executive board, suggesting policy makers are divided over how to fight the debt crisis. U.S. President Barack Obama called on Congress last night to pass a $447 billion plan to boost employment after jobs growth stalled last month. “There’s that nagging thought that we can continue to have a downward spiral in Europe,” James Dunigan, chief investment officer in Philadelphia for PNC Wealth Management, said in a telephone interview. The firm oversees $109 billion
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Greek Bonds
Greek two-year note yields added as much as 203 basis points to 57.08 percent, a euro-era record. Credit-default swaps insuring Greek sovereign bonds jumped 475 basis points to a record 3,500, according to CMA. One-year Greek note yields jumped 325 basis points to a record 97.96 percent. Spanish and Italian 10-year yields increased 14 and 13 points respectively.
The cost of insuring sovereign debt climbed, with the Markit iTraxx SovX Western Europe Index of credit swaps on 15 governments up 17 basis points at 340. The Markit iTraxx Financial Index of swaps on 25 banks and insurers rose 26 basis points to 290 at 4:30 p.m. in London, according to JPMorgan Chase & Co.
Germany’s emergency plan if Greece defaults involves measures to help banks and insurers that face a possible 50 percent loss on their Greek bonds if the next tranche of Greece’s bailout is withheld, said the people, who spoke on condition of anonymity because the deliberations are being held in private. The successor to the German government’s bank-rescue fund introduced in 2008 might be enrolled to help recapitalize the banks, one of the people said.
Only The Beginning’
“It is our belief that a 50 percent writedown is only the beginning,” Dan Greenhaus, chief global strategist at BTIG LLC in New York, wrote in a note to clients. “With Greece’s debt/GDP ratio hitting 160 percent, debt will probably have to be reduced by as much as 75 percent in order to provide a more sustainable starting point.”
Deutsche Bank AG, Germany’s biggest lender, slid 7.3 percent. The benchmark DAX Index lost 4 percent.
Questions over Greece’s ability to meet the terms of its first rescue package are dogging the indebted nation as bondholders weigh whether to participate in a debt exchange that’s crucial to a second bailout. Greece sought responses today from bond investors to the proposed debt swap, part of a 159 billion-euro ($220 billion) European Union rescue plan agreed upon in July.
Greece is committed to “full implementation” of its bailout agreement, the country’s finance ministry said in a statement. The country rejected default talk as “organized speculation,” according to an e-mailed statement from the ministry.
Greece has no plans to publish details of anticipated participation in its debt-swap this week or next, said Petros Christodoulou, head of the country’s debt management office. The response so far has been “very positive,” he said in a telephone interview. “There will not be a number coming out of Athens today or next week. At this moment, more than half of the Europeans have not even responded. It is too early.”
If the United States falls back into recession, Europe will have pushed it there, says author and economist A. Gary Shilling.
Debt concerns in peripheral European countries like Greece and Italy are threatening to spread, sending shockwaves across the continent and to the U.S. stock markets on fears that financial institutions worldwide are vulnerable.
"The plunge is due partly to the uncertainty caused by European leaders, who seem determined to preserve an untenable status quo. These structural problems could make the eurozone's economic predicament even more challenging than America's," Shilling writes in a Christian Science Monitor column.
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