Bond Yields Fall to Records as Stocks, Euro Slide on Debt

Government bond yields in the U.S., U.K. and Germany fell to records, while stocks dropped and the euro traded below its lifetime average against the dollar on concern the region’s debt crisis is deepening. Commodities slid as a Chinese central-bank adviser said growth may slow further.

The yield on the 10-year U.S. Treasury note declined to 1.44 percent at 4 p.m. New York time after reaching an all-time low of 1.40 percent. Two-year German yields slumped to as low as minus 0.08 percent and Spanish and Italian yields jumped. The Standard & Poor’s 500 Index lost 0.9 percent, with almost eight shares declining for each one rising. The euro fell for a fourth day and oil dropped 3.5 percent. Credit-default swaps on Spain rose as much as 31 basis points to an all-time high of 636.

S&P 500 futures expiring in September lost 0.4 percent to 1,338.30 at 5:30 p.m. in New York as Moody’s Investors Service cut the outlooks for Germany, the Netherlands and Luxembourg.

“Nothing is really fixed in Europe,” John Manley, chief equity strategist for Wells Fargo Advantage Funds in New York, said in a telephone interview. His firm oversees $201 billion. “The Spanish situation is chronic. And it’s not just Spain. This isn’t over.”

Greece’s creditors meet this week amid doubts that the country will meet its bailout commitments. German Vice Chancellor Philipp Roesler said he’s “very skeptical” that European leaders will be able to rescue Greece. China’s economic expansion may cool for a seventh straight quarter to 7.4 percent in the three months to September, said Song Guoqing, a member of the People’s Bank of China monetary policy committee.

‘Rising Uncertainty’

After the market closed, Moody’s said it lowered Germany, the Netherlands and Luxembourg’s Aaa credit rating outlooks to negative, citing “rising uncertainty” about Europe’s debt crisis. Risks that Greece may leave the 17-nation euro currency and “increasing likelihood” of collective support for European countries such as Spain and Italy were among reasons for the change, Moody’s said today in a statement.

Germany’s two-year note yield was below zero for the 12th consecutive day and Spain’s 10-year yields surged 23 basis points to 7.50 percent, after El Pais reported that six Spanish regions may ask for aid from the central government. U.S. five- year yields touched an all-time low of 0.54 percent, while 30- year rates also slumped to records. U.K. two-year yields dropped to an unprecedented 0.05 percent.

The euro weakened 0.3 percent to 95.12 yen after touching 94.24, the lowest since November 2000. It dropped as much as 0.7 percent to $1.2067, a level unseen since June 2010. The Australian and New Zealand dollars fell at least 0.9 percent as growth concerns reduced demand for riskier assets.

Europe Stocks

The Stoxx Europe 600 Index (SXXP) lost 2.5 percent as a gauge of banks retreated to a six-week low. Wereldhave NV sank 13 percent, the most since 1989, after the Dutch real-estate company cut the value of property in the U.S. and U.K.

Spain and Italy moved to ban short-selling of stocks. Spain’s stock market regulator, the CNMV, said it was banning short selling of all stocks for three months, amid “extreme volatility.” Italy’s Consob said its ban, scheduled to last a week, was introduced on some banking and insurance shares because of the “recent performance of stock markets.”

Banco Santander SA (SAN), Spain’s largest lender, gained 1 percent after tumbling as much as 5.1 percent earlier. Italy’s UniCredit SpA slipped 0.2 percent, paring a loss that reached 7.5 percent.

All 10 groups in the S&P 500 (SPXL1) fell as commodity shares had the biggest losses. Alcoa Inc., Microsoft Corp. and Citigroup Inc. dropped at least 1.4 percent, pacing declines among the largest companies. McDonald’s Corp. (MCD), the world’s largest restaurant chain, fell 2.9 percent after second-quarter profit trailed analysts’ projections as U.S. same-store sales (SPX) slowed.

Sales Growth

Better-than-forecast earnings are masking weaker sales growth in the quarter as U.S. companies improve margins to top estimates. Sales rose an average 3 percent among 123 members of the S&P 500 that have reported second-quarter results so far, according to data compiled by Bloomberg. Only 41 percent of the reported companies have topped analysts’ estimates on sales, while 73 percent have beaten on profit, the data show.

The Chicago Board Options Exchange Volatility Index, known as the VIX (VIX), surged 14 percent to 18.60 for the biggest gain in a month. Europe’s VStoxx Index, which measures the cost of Euro Stoxx 50 Index option prices, jumped 16 percent to 28.08.

U.S. consumer confidence and equity valuations are diverging the most in 17 years as price-earnings ratios fall, according to data compiled by Bloomberg. The S&P 500 has traded at an average price-earnings multiple of 13.9 this year, 0.18 times the mean level of the Thomson Reuters/University of Michigan final index of consumer sentiment, according to data compiled by Bloomberg. The gap is the widest since 1995.

Defensive Stance

Concern about a global slowdown and a deepening of Europe’s debt crisis has led investors to a more defensive stance since the S&P 500’s 2012 high in April. Phone, utility, health-care and consumer staples companies were the only ones to gain among the 10 groups during that period. Financial and technology shares tumbled at least 9 percent for the biggest losses.

The S&P GSCI gauge of commodities dropped as much as 3.3 percent today. Oil in New York fell to $88.27 a barrel. Copper slumped 2.1 percent. China is the biggest buyer of energy and industrial metals.

Corn and soybean futures plunged from records on speculation that Europe’s economic crisis may curb demand after prices surged amid the worst U.S. drought in 56 years. Corn fell 1.3 percent, while soybeans tumbled 3.8 percent. Wheat futures lost 3.2 percent.

Emerging Markets

The MSCI Emerging Markets Index (MXEF) lost 2.7 percent, the lowest close since June 28. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong tumbled 3.1 percent, the most since May 16. Benchmark indexes lost more than 1 percent in India, South Korea, Russia and Turkey.

Roesler, who is Germany’s economy minister, told broadcaster ARD that Greece is unlikely to be able to meet its obligations under a euro-area bailout program as its troika of international creditors, the European Commission, the European Central Bank and the International Monetary Fund, hold talks this week in Athens. Should that be the case, the country won’t receive more bailout payments, Roesler said.

To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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