The U.S. Treasury 10-year yield slid to a record while stocks tumbled and the euro weakened to a two-year low as Spain struggled to recapitalize its banks, concern grew about Greece’s future in the euro and American home sales declined. Italian and Spanish bonds tumbled.
Ten-year U.S. note yields lost as much as 13 basis points to 1.6153 percent. The MSCI All-Country World Index plunged 1.8 percent, the most since April. The Standard & Poor’s 500 Index slid 1.4 percent to close at 1,313.32 at 4 p.m. in New York. The euro sank 1.1 percent to $1.2368. The 10-year Italian yield jumped 17 basis points and Spanish 10-year rates rose to a euro-era record relative to German bunds. Two-year German yields touched zero for the first time. The S&P GSCI commodities gauge fell 2.3 percent as oil sank below $88 a barrel.
Concern about Europe’s debt crisis deepened after Italy failed to meet its maximum target at a debt sale, costs to protect Spanish government bonds with default swaps climbed to an all-time high and a Greek poll showed support for anti-austerity parties. The National Association of Realtors said the index of pending U.S. home resales dropped 5.5 percent in April from the prior month.
“You have a market that’s largely being driven by fear,” said David Coard, head of fixed-income trading in New York at Williams Capital Group, a brokerage for institutional investors. “The U.S. will continue to be the primary recipient of the safe-haven bid. People are clearly more confident in Treasuries. We still have the most liquid, capital markets.”
The 10-year Treasury yield, which is a benchmark for everything from mortgages to corporate bonds, fell in each of the nine weeks through May 18, the longest stretch since 1998. The 30-year U.S. bond yield dropped 14 basis points to 2.71 percent today, the lowest level since October. Seven-year notes reached a record low 1.05 percent.
The S&P 500 slid the most since May 17 and erased yesterday’s 1.1 percent rally as energy, financial and industrial companies led losses in all 10 main industry groups. Caterpillar Inc., Chevron Corp., Alcoa Inc., Exxon Mobil Corp. and Bank of America Corp. lost more than 2.5 percent for the biggest declines in the Dow Jones Industrial Average, which sank 160.83 points to 12,419.86.
A gauge of homebuilders in S&P indexes tumbled 4.9 percent after rallying for six straight days, its longest streak in almost a year.
Research In Motion Ltd. slid 7.1 percent to lead Canadian stocks lower as the maker of the BlackBerry smartphone forecast a surprise operating loss for the first quarter and hired banks to advise on strategic options.
The Stoxx Europe 600 Index declined 1.5 percent as Spain’s IBEX 35 Index plunged 2.6 percent to a nine-year low and Italy’s FTSE MIB Index tumbled to the lowest since March 2009.
BASF SE, the world’s biggest chemical maker, declined 2 percent as Frankfurter Allgemeine Zeitung reported the company isn’t seeing the kind of dynamism it expected in Asia. BHP Billiton Ltd. and Rio Tinto Plc fell at least 2.5 percent as copper declined. Royal Dutch Shell Plc, Europe’s biggest oil company, retreated with the price of oil.
The European Central Bank rejected a Spanish plan to recapitalize the state-owned lender Bankia group, the Financial Times reported. The ECB said today it hasn’t been consulted by Spain on any plans to recapitalize a “major Spanish bank” and that it has “not expressed a position on plans by the Spanish authorities” for such a move.
The European Commission called for direct euro-area aid for troubled banks, touted common bond issuance and sided with Spain in proposing that the euro’s permanent bailout fund inject cash to banks, according to policy recommendations released today in Brussels.
The euro fell to as low as $1.2362, the weakest since July 1, 2010, and slid 1.6 percent versus the yen for its seventh consecutive decline. The shared currency weakened against 10 of 16 major peers, while the dollar strengthened against all 16 except the yen.
Most Greeks want to see the terms of an international financial rescue revised even as they acknowledge that failing to abide by them may lead to the country exiting the euro, an opinion poll showed. Seventy-seven percent of the 1,600 Greeks surveyed by GPO SA said the terms of the bailout should be revised. A VPRC opinion poll for Epikaira magazine showed that anti-austerity party Syriza had the support of 30 percent of voters, compared with 26.5 percent for New Democracy, which backs the terms of a European Union bailout.
Credit-default swaps on Spain climbed 27 basis points to a record 588, according to prices from CMA. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments 5.6 basis points higher to a mid-price of 320.25.
Spain’s 10-year yield climbed 21 basis points to 6.66 percent, with the spread over bunds widening to as much as 541 basis points, or 5.41 percentage points, a euro-era record. The yield on the German 10-year security fell as much as 10 basis points to 1.26 percent, the lowest on record.
Spanish unemployment probably will rise above its current record level as the country grapples with budget challenges and the threat of further costly bank bailouts, the European Commission said. Spanish banks may have to set aside even more capital to brace themselves against the impact of a weaker economy, the commission, the EU’s regulatory arm, said in a staff report today.
Spain’s gross domestic product is forecast to fall 1.8 percent this year and 0.3 percent in 2013, with the strongest economic contraction in the second half of 2012. The jobless rate is projected to increase to 25.1 percent next year.
‘Need for Burden Sharing’
“Spain looks to have gotten to the point where it cannot bear the burden alone,” David Mackie, chief economist at JPMorgan Chase & Co. in London, wrote in a report. “The Spanish government recognizes the need for burden sharing, but it does not want the kind of burden sharing that was made available to Greece, Ireland and Portugal.”
Among the 24 materials tracked by the S&P GSCI index, 20 retreated, with energy commodities and cotton leading declines.
Crude for July delivery decreased 3.2 percent to $87.84 a barrel and touched a seven-month low of $87.82, the lowest settlement since Oct. 21. Prices are down 16 percent this month, the biggest drop since December 2008. A report tomorrow may show U.S. stockpiles climbed to the highest level since 1990. Brent crude dropped below $105 a barrel in London for the first time this year. Copper slipped 2.1 percent to $3.39 a pound in New York, its lowest settlement price of the year.
The MSCI Emerging Markets Index slid 1.7 percent as benchmark gauges in Russia, Hungary, Taiwan and Thailand fell more than 1 percent. The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong dropped 1.7 percent after Xinhua News Agency said yesterday that China has no plans to introduce stimulus measures on the scale seen during the global financial crisis. India’s Sensex Index declined as Tata Motors Ltd., the country’s largest automaker, sank 12 percent after its main Jaguar Land Rover unit posted earnings that missed analysts’ estimates.