Wednesday, December 14, 2011

Lower markets on growing European debt anxieties

Dow dropped 111, decliners over advancers almost 4-1 & NAZ fell 40.  But the Financial Index is down only fractionally.

The MLP index fell 3+ to below 370 but the REIT index is up a fraction.  Junk bond funds were down a tad & Treasuries rose bringing the yield on the 10 year Treasury to levels not seen since early Oct.  The 90 day bill earns zero interest (like a checking account).  Oil tumbled as the € dropped to the lowest level against the dollar in 11 months on fading optimism about an EU plan to deal with the debt crisis.  Gold tumbled the most in 11 weeks as the Federal Reserve refrained from taking more stimulus measures.

AMZ  Alerian MLP Index

DJR  Dow Jones Equity REIT Index

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLF12.NYM...Crude Oil Jan 12...96.75 .....Down 3.39  (3.4%)

GCZ11.CMX...Gold Dec 11....1,602.30 ...Down 57.60  (3.5%)

Click below for the latest market update:

Italy's Prime Minister Mario Monti

Photo:   Bloomberg

Italy paid the most in 14 years to sell 5-year bonds as Parliament rushes to pass a €30B ($39B) budget that Prime Minister Monti says will bring down record borrowing costs.  The Treasury sold €3B of the bonds, the maximum for the sale, to yield 6.47%, the most since 1997 & up from 6.29% at the last auction last month.  Demand was 1.42X the amount on offer, compared with 1.47X previously.  The Cabinet approved a sweeping budget plan on Dec 4 aimed at raising revenue & boosting the anemic growth to persuade investors Italy can tame the debt & avoid a bailout.  Parliamentary committees signed off on the amended plan last night, paving the way for a vote this week in the lower house.  The euro region’s 3rd-largest economy has to repay about €53B in Q1 from the region’s total maturing debt of €157B.  It owes a further €3.2B in interest payments based on the average 5-year yield of the past 3 months.  The yield on the benchmark 10-year bond is presently 6.69%, up one basis point from yesterday, pushing the difference with German bonds to 4.69 percentage points. The € extended its decline, trading below $1.30 for the first time since Jan.  Interest rates tell us the situation keeps getting worse.

Italy Sells Debt at Record Yields as Monti Rushes to Get Budget Approved

Chancellor Merketl's Cabinet backed plans to reactivate the Germany bank-rescue fund to help bolster lenders facing insolvency & lessen the risk of a systemic financial meltdown as a result of the debt crisis.  Ministers agreed to boost the size of the fund to €480B ($626B) from €360B.  The text waters down provisions in earlier drafts to force troubled banks to recapitalize.  ‘It’s especially important to act preventively including when there is a latent danger” to the bank system, the bill said.  The fund’s revival underscores the aim by the gov to be ready should any bank face collapse during the debt crisis & to pre-empt contagion.  The measures include state help if banks are unable to raise capital via private means. Another indication that the situation is getting very tense.

Merkel’s Cabinet Backs Revival of Bank-Rescue Fund to Reduce Meltdown Risk

Greece's Finance Minister Venizelos said negotiations for a massive new debt agreement cannot be amended by future govs, effectively locking the country into the deal through 2015.  He said there was "no margin" for renegotiation of the €130 B ($171B) rescue deal involving Greece's eurozone partners & private bondholders.  "Now is the hour to negotiate the new program that will shield us with euro130 billion in additional assistance from our partners, that will cover our funding needs till 2015," Venizelos said.  "After the agreement is signed and ratified, a renegotiation cannot be foreseen — these are terms set with our partners to more than double financial support for Greece, and retain our position in the euro."  Venizelos said he believed talks with banks for a voluntary bond write-down could be concluded "without much difficulty."  It's easy to see why the € is sinking, leading markets around the world lower

Greece: debt deal cannot be amended AP

This is turning out to be another dreary day for the markets.  High yield securities (like MLPs & REITs) have been hanging in there fairly well, because of attractive yields even though they're far below record levels.  As long as the European debt mess drags on, stocks will be under pressure.  European finance ministers are recognizing there there is not a bottomless pit of money for bailouts & the markets are catching on.  The 12.2K ceiling for the Dow has held.  Its next move could be the test lows in the low 11Ks.  One thing, bulls are not buying.

Dow Jones Industrial Average

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