Photo: Bloomberg
Photo: Bloomberg

Bonds drop with stocks, gold to extend $2 trillion global loss

Global equities declined after their value reached a record $72 trillion on 27 April

Hong Kong/London: Bonds fell and stocks declined around the world, extending losses that erased more than $2 trillion from global markets in less than two weeks. Precious metals retreated while corporate bond risk rose to the highest level this year.

German 10-year bund yields jumped 10 basis points to 0.68% at 7:05 am in New York. Treasuries pared earlier losses, leaving the 10-year rate little changed at 2.25 %. The MSCI All-Country World Index dropped 0.6% and Standard & Poor’s 500 Index futures slid 0.5%. The cost of insuring European corporate debt against default increased to as much as 67 basis points, the highest since 16 December. India’s rupee and Thailand’s baht led emerging-market currencies lower. Chinese shares capped their biggest three-day decline in almost two years. Gold and silver fell at least 0.7%.

Global equities have declined after their value reached a record $72 trillion on 27 April and about $436 billion has been erased from global bonds as China’s economy slowed and investors assessed growth prospects in the US and the outlook for higher interest rates. A 51% rally in Brent crude since mid-January is adding to signs of inflation.

“The move is brutal, but that’s partly because the market was less liquid," said Richard McGuire, head of European rates strategy at Rabobank International in London. “A shift in sentiment and fundamentals may have triggered it. But price action suggested valuations in bond markets were at extreme levels."

Bonds slide

The yield on 10-year French bonds climbed 16 basis points to 1.07%, and Italy’s rose five basis points to 1.97%. Implied option volatility on German 10-year bund futures contracts surged in the past week to the highest since August 2012, data compiled by Bloomberg showed.

Poland scrapped an auction of local-currency bonds, citing adverse conditions on foreign markets amid a slump in euro-area debt.

The euro advanced against 12 of its 16 major counterparts, strengthening 0.3% to $1.1375.

The average yield for investment-grade corporate bonds in euros climbed to 1.11% from a record low of 0.85% in March, according to Bank of America Merrill Lynch Index data.

Federal Reserve chair Janet Yellen said on Wednesday that long-term rates are low and could jump when the central bank raises its benchmark. Initial jobless claims in the US probably rose last week, economists said before the Labour Department report on Thursday. That’s the last jobs data before the monthly payrolls report on Friday. Companies added the fewest number of workers in more than a year last month, a private report showed on Wednesday.

Cutting forecast

The Stoxx Europe 600 Index slid 1.6% with all 19 industry groups declining. Energy and commodity producers led the retreat.

ArcelorMittal dropped 3.5% after cutting its full- year earnings forecast. Siemens AG slipped 2% after Europe’s largest engineering company reported worse-than- forecast profit and said it will cut another 4,500 jobs. Adecco SA retreated 6.2% after saying its chief executive officer and chief financial officer will leave.

HeidelbergCement AG rose 1.7% after the world’s third-largest cement maker posted quarterly profit that beat estimates. Telecity Group Plc soared 18% after Equinix Inc. made a £2.3 billion ($3.5 billion) takeover approach for the British data-center operator.

Greece’s ASE Index climbed 2.5%, with Piraeus Bank SA and Attica Bank jumping more than 10%. Benchmark stock indexes of Spain, Portugal and France fell 1%.

Alibaba jumps

S&P 500 E-mini futures expiring in June fell, indicating the index will drop for a third day.

Alibaba Group Holding Ltd. climbed 6% after reporting a 45% increase in fourth-quarter revenue. The company named Daniel Zhang as its new chief executive officer, replacing Jonathan Lu.

Keurig Green Mountain Inc. sank 12% in early New York trading after the maker of single-serve coffee machines cut its annual profit forecast. Whole Foods Market Inc. lost 12% in early New York trading after reporting revenue and comparable-store sales that trailed analysts’ estimates.

CBS Corp. is among 17 S&P 500 companies reporting earnings on Thursday. About 72% of the 408 S&P 500 companies that have reported earnings this season have beaten analysts’ profit projections, while 46% topped sales estimates.

The MSCI Emerging Markets Index slid 1.6%, poised for the lowest close since 8 April. The rupee and baht fell at least 1% and Indonesia’s rupiah lost 0.9. A gauge of 20 emerging-market currencies declined for the first time in three days, dropping 0.3%.

Chinese stocks

The Shanghai Composite lost 2.8%, extending a three- day decline to 8.2%. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong slipped 1.6%.

Morgan Stanley downgraded Chinese stocks for the first time in more than seven years on Thursday, citing the weakest corporate profits since 2009. Trade data on Friday may show China’s imports declined for a sixth straight month in April.

Russian government bonds rose for a sixth day, sending yields on February 2027 notes two basis points to 10.27%. The ruble strengthened 0.7%.

Goldman Sachs Group Inc. lowered its year-end inflation forecast for Russia and reiterated its bullish view on the nation’s local-currency bonds, saying the lack of price pressures means there is no “meaningful constraint" on the central bank’s rate-cutting cycle.

Precious metals retreated, with gold losing 0.7% to $1,183.87 an ounce in London. Silver slid 1.5%. Brent rose 0.5% to $68.13 a barrel in London. Bloomberg