May 06, 2010, 3:26 PM EDT
By Michael P. Regan and Rita Nazareth
May 6 (Bloomberg) -- The Dow Jones Industrial Average posted its biggest intraday loss since the market crash of 1987, the euro slid to a 14-month low and yields on Greek, Spanish and Italian bonds surged on concern European leaders aren’t doing enough to stem the region’s debt crisis. U.S. Treasuries rallied.
“It’s panic selling,” said Burt White, chief investment officer at LPL Financial in Boston, which oversees $379 billion. “There’s concern that the European situation might cool down global growth and freeze the credit markets.”
The Dow lost as much as 998.5 points, or 9.2 percent, before paring its loss to 383.17 points at 3:17 p.m. in New York. The Standard & Poor’s 500 Index fell as much as 8.6 percent, its biggest plunge since December 2008, before trimming its decline to 3.6 percent.
European Central Bank President Jean-Claude Trichet held interest rates steady at a record low of 1 percent today and said the bank didn’t discuss whether to purchase government bonds to stem the region’s debt crisis, defying market speculation that he would take such measures. The euro maintained losses even as Greece’s parliament approved austerity measures demanded by the European Union and International Monetary Fund as a condition of its 110 billion ($140 billion) bailout.
Market ‘Horrified’
“The ECB can fix this instantly by doing what the Fed has done -- instantly providing liquidity by buying bad fixed-income instruments and paying cash in U.S. dollars,” said David Kovacs, head of quantitative strategies at Turner Investment Partners in Berwyn, Pennsylvania, which manages $18 billion. “The reason the market is horrified now is Trichet said it’s not even being discussed. Smart investors are basically selling risk assets.”
The MSCI Asia Pacific Index today joined the MSCI World Index and the Stoxx 600 Index in erasing its advance for 2010. The Dow and S&P 500 briefly erased their yearly gains before paring losses.
Bank of America Corp., General Electric Co. and Boeing Co. tumbled more than 5 percent to lead declines in the Dow Jones Industrial Average as the 30-stock gauge.
The benchmark index for U.S. stock options surged as much as 62 percent, the most since February 2007, to 40.26. The VIX, as the Chicago Board Options Exchange Volatility Index is known, measures the cost of using options as insurance against declines in the Standard & Poor’s 500 Index.
Treasury Yields
Yields on the benchmark 10-year Treasury note plunged 14 basis points to 3.398 percent on demand for assets considered the most safe. The Dollar Index, which measures the currency against six major trading partners, jumped as much as 1.4 percent.
Yields on Fannie Mae and Freddie Mac mortgage securities that guide U.S. home-loan rates jumped the most relative to Treasuries in almost a year as investors flocked to the safety of U.S. government notes on concern Europe’s leaders aren’t doing enough to halt their debt crisis.
Spreads on Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds widened about 0.1 percentage point to 0.89 percentage point more than 10-year Treasuries as of 2:45 p.m. in New York, the biggest jump since May 27, according to data compiled by Bloomberg.
The gap touched a record low of 0.59 percentage point on March 29 as the Federal Reserve that month completed its purchases of $1.25 trillion of agency mortgage bonds.
“Fear is taking over, and images of Greek mobs aren’t helping,” said Larry Peruzzi, equity trader at Cabrera Capital Markets in Boston, Massachusetts, referring to televised images of demonstrations against austerity measures in Athens. “Buyers are stepping aside and disregarding fundamentals.”
--With assistance from Mark Gilbert and Keith Jenkins in London, Simon Kennedy in Paris, Simone Meier in Dublin, John Detrixhe, Elizabeth Stanton, Inyoung Hwang and Michael Tsang and Mark Shenk in New York and Pham-Duy Nguyen in Seattle. Editors: Chris Nagi, Dan Hauck.
To contact the reporters on this story: Michael P. Regan in New York at Mregan12@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net.
To contact the editor responsible for this story: Chris Nagi at chrisnagi@bloomberg.net.
May 6 (Bloomberg) -- The Dow Jones Industrial Average posted its biggest intraday loss since the market crash of 1987, the euro slid to a 14-month low and yields on Greek, Spanish and Italian bonds surged on concern European leaders aren’t doing enough to stem the region’s debt crisis. U.S. Treasuries rallied.
“It’s panic selling,” said Burt White, chief investment officer at LPL Financial in Boston, which oversees $379 billion. “There’s concern that the European situation might cool down global growth and freeze the credit markets.”
The Dow lost as much as 998.5 points, or 9.2 percent, before paring its loss to 383.17 points at 3:17 p.m. in New York. The Standard & Poor’s 500 Index fell as much as 8.6 percent, its biggest plunge since December 2008, before trimming its decline to 3.6 percent.
European Central Bank President Jean-Claude Trichet held interest rates steady at a record low of 1 percent today and said the bank didn’t discuss whether to purchase government bonds to stem the region’s debt crisis, defying market speculation that he would take such measures. The euro maintained losses even as Greece’s parliament approved austerity measures demanded by the European Union and International Monetary Fund as a condition of its 110 billion ($140 billion) bailout.
Market ‘Horrified’
“The ECB can fix this instantly by doing what the Fed has done -- instantly providing liquidity by buying bad fixed-income instruments and paying cash in U.S. dollars,” said David Kovacs, head of quantitative strategies at Turner Investment Partners in Berwyn, Pennsylvania, which manages $18 billion. “The reason the market is horrified now is Trichet said it’s not even being discussed. Smart investors are basically selling risk assets.”
The MSCI Asia Pacific Index today joined the MSCI World Index and the Stoxx 600 Index in erasing its advance for 2010. The Dow and S&P 500 briefly erased their yearly gains before paring losses.
Bank of America Corp., General Electric Co. and Boeing Co. tumbled more than 5 percent to lead declines in the Dow Jones Industrial Average as the 30-stock gauge.
The benchmark index for U.S. stock options surged as much as 62 percent, the most since February 2007, to 40.26. The VIX, as the Chicago Board Options Exchange Volatility Index is known, measures the cost of using options as insurance against declines in the Standard & Poor’s 500 Index.
Treasury Yields
Yields on the benchmark 10-year Treasury note plunged 14 basis points to 3.398 percent on demand for assets considered the most safe. The Dollar Index, which measures the currency against six major trading partners, jumped as much as 1.4 percent.
Yields on Fannie Mae and Freddie Mac mortgage securities that guide U.S. home-loan rates jumped the most relative to Treasuries in almost a year as investors flocked to the safety of U.S. government notes on concern Europe’s leaders aren’t doing enough to halt their debt crisis.
Spreads on Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds widened about 0.1 percentage point to 0.89 percentage point more than 10-year Treasuries as of 2:45 p.m. in New York, the biggest jump since May 27, according to data compiled by Bloomberg.
The gap touched a record low of 0.59 percentage point on March 29 as the Federal Reserve that month completed its purchases of $1.25 trillion of agency mortgage bonds.
“Fear is taking over, and images of Greek mobs aren’t helping,” said Larry Peruzzi, equity trader at Cabrera Capital Markets in Boston, Massachusetts, referring to televised images of demonstrations against austerity measures in Athens. “Buyers are stepping aside and disregarding fundamentals.”
--With assistance from Mark Gilbert and Keith Jenkins in London, Simon Kennedy in Paris, Simone Meier in Dublin, John Detrixhe, Elizabeth Stanton, Inyoung Hwang and Michael Tsang and Mark Shenk in New York and Pham-Duy Nguyen in Seattle. Editors: Chris Nagi, Dan Hauck.
To contact the reporters on this story: Michael P. Regan in New York at Mregan12@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net.
To contact the editor responsible for this story: Chris Nagi at chrisnagi@bloomberg.net.
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