Markets hit by slump in U.S. Treasury bond prices
Stock markets closed sharply lower yesterday as prices for U.S. Treasury bonds slumped – putting upward pressure on interest rates – while the likelihood increased that General Motors will file for creditor protection.
GM said bondholders rejected its proposal to exchange $27 billion (U.S.) in debt for 10 per cent of the company’s stock, ahead of a Monday deadline for a government-ordered restructuring. GM shares tumbled 20 per cent to $1.15.
"I don’t know that anybody was really expecting something miraculous to happen here," said Jennifer Radman, associate portfolio manager at Caldwell Securities. "It was against the odds from the start."
Toronto’s S&P/TSX composite index slipped 143.74 points to 10,142.16, weighed down by falling financial stocks.
A surge in financials had generated a 216-point gain Tuesday following a well-received quarterly report from Bank of Montreal. BMO stock fell $1.92 (Canadian) to $41.79, wiping out most of Tuesday’s gain of $2.15.
The TSX Venture Exchange lost 4.17 points to 1,092.99. The Canadian dollar declined 0.13 of a cent to 89.33 cents (U.S.).
In New York, the Dow Jones industrial average dropped 173.47 points to 8,300.02.
The Nasdaq composite index declined 19.35 to 1,731 classic car insurance.08 while the S&P 500 index shed 17.27 to 893.06.
The slide accelerated as the benchmark 10-year U.S. Treasury note tumbled, pushing its yield up to 3.66 per cent, from 3.55 per cent Tuesday. The drop came after a Treasury auction of $35 billion in five-year notes, part of $101 billion in debt Washington is issuing this week.
"And you’re going to relate that to the stock market, where all of a sudden you’re going to look for higher yields in (bonds), which pushes stock prices down," said Fred Ketchen, manager of equity trading at Scotia Capital.
In addition to raising borrowing costs for the government, rising debt yields could hamper an economic recovery.
The Toronto financial sector stepped back 2.9 per cent ahead of earnings reports today from CIBC, Scotiabank, TD Bank and National Bank, and tomorrow from Royal Bank. Shares in those banks had gained at least 5 per cent Tuesday, but surrendered more than 2 per cent yesterday.
The Toronto energy sector was little changed as the July crude oil contract added $1 to $63.45 per barrel on the New York Mercantile Exchange.
The Canadian Press