Thursday, April 8, 2010

Greek Bonds, Stocks, Commodities Decline

Greek Bonds, Stocks, Commodities Decline on Debt Concern

By Jeff Kearns and Justin Carrigan

April 8 (Bloomberg) -- Greek bonds slid, sending the yield premium over German debt to the widest since the euro’s inception, and stocks fell on speculation that the bailout of Europe’s most indebted nation will unravel. The yen rallied.

The Greek 10-year spread to benchmark German bunds widened to 426 basis points at 11:22 a.m. in New York. Greece’s ASE Index of stocks slid 3.1 percent and the cost of insuring against a default by the nation climbed to a record. The Stoxx Europe 600 Index tumbled 0.8 percent and the Standard & Poor’s 500 Index slipped 0.2 percent. Equities and Greek bonds pared declines and the euro reversed losses against the dollar after European Central Bank President Jean-Claude Trichet said he doesn’t expect the nation to default.

Finance Minister George Papaconstantinou said Greece doesn’t need additional austerity measures, after the European Union and the International Monetary Fund agreed on terms for an emergency support package last month. Europe’s economy unexpectedly stagnated in the fourth quarter, and Japanese machinery orders and U.S. consumer credit slumped, adding to investor concern that the economic rebound may falter.

“There is now increasing uncertainty surrounding Greece’s ability to raise the required amount of funding without recourse to the emergency lending facility provided by euro member states and the IMF,” Steven Mansell, a strategist at Citigroup Inc. in London, wrote in a report. “This raises the question of whether or not tensions will also rise in other peripheral markets. We think that some form of contagion is inevitable.”

Second Day of Losses

The S&P 500, which dropped 0.6 percent yesterday for its biggest decline since February, fell again today as an unexpected increase in jobless claims fueled concern the recovery in the job market may slow. Financial and energy companies contributed the most to the drop, with JPMorgan Chase & Co. and Exxon Mobil Corp. pacing declines.

Losses in U.S. stocks were limited as retailers in the S&P 500 rallied 1 percent as a group. March same-store sales rose 8.7 percent, according to Retail Metrics Inc. The group had forecast a 6.1 percent gain and said March was the best monthly increase for its index dating back to the beginning of 2000.

Gap Inc., Saks Inc. and TJX Cos. were among chain stores that rallied on better-than-estimated sales.

“Most of the retailers are beating estimates by a handy margin,” said Sal Catrini, a managing director for equities at Cantor Fitzgerald & Co. in New York. “If they continue to rally it’s a huge positive for markets given the high expectations going in.”

Greek Yields

Declines in Greek bonds pushed the yield on the government’s 10-year note up 18 basis points to 7.35 percent. Credit-default swaps on Greece’s government debt increased to a record 4.66 percentage points, according to CMA DataVision prices.

Concern other indebted nations may struggle to meet their funding needs pushed Portugal’s 10-year yield 8 basis points higher to 4.34 percent.

Greek banks slumped, with EFG Eurobank Ergasias SA, the country’s second-largest lender, tumbling 8.1 percent for the biggest decline on the Stoxx 600. Papaconstantinou told ANT1 television that additional budget cuts designed to trim a budget deficit that reached 12.9 percent of gross domestic product last year won’t be needed so long as existing measures are implemented “correctly.”

ECB Rates Steady

The European Central Bank left interest rates at a record low as the Greek fiscal crisis complicates its withdrawal of emergency stimulus measures. The Frankfurt-based ECB kept its benchmark interest rate at 1 percent, as predicted by all 62 economists in a Bloomberg News survey. A separate poll shows the rate may stay there until the first quarter of next year.

ECB President Jean-Claude Trichet has already announced changes to the central bank’s collateral rules to help Greece.

“Most of the world reads about Greece and wonders why there is so much fuss,” Mark Grant, managing director of Southwest Securities Inc. in Fort Lauderdale, Florida, wrote in a note to institutional clients. “The European Union is about to hit critical mass which will be a defining moment for America, Europe and the entire world that will have financial consequences for generations.”

The MSCI World Index of 23 developed nations’ stocks fell 0.5 percent while the MSCI Emerging Markets Index declined for the first time in 10 days, sliding 0.8 percent. In Europe, 17 of 19 industry groups in the Stoxx 600 declined, led by basic resources shares and banks. BHP Billiton Ltd., the world’s biggest mining company, dropped 1.1 percent in London. The MSCI Asia Pacific Index lost 0.6 percent, its first drop in six days.

German Bunds

German government bonds gained, with the yield on the two- year bund dropping 4 basis points to 0.91 percent. Bunds are Europe’s benchmark debt securities because Germany is Europe’s biggest economy.

U.S. 30-year bond yields were little changed at 4.74 percent before the government sells $13 billion of the securities today. Ten-year notes were also little changed after surging yesterday following an auction that drew the strongest demand in at least 16 years. The yield was at 3.85 percent.

Copper fell for a second day, declining 1 percent to $7,865 a metric ton on the London Metal Exchange. Aluminum, nickel and zinc also retreated. Gold rose 0.1 percent to $1,150.68 an ounce, and crude oil dropped 1 percent to $85.04 a barrel in New York.

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