Published: Wed, February 07, 2018
Markets | By Rosalie Gross

Bond yields down as investors move to safe haven instruments

Bond yields down as investors move to safe haven instruments

At 12:34 p.m. ET (1734 GMT), the Dow Jones Industrial Average was down 230.59 points, or 0.9 percent, at 25,290.37, the S&P 500 was down 19.93 points, or 0.72 percent, at 2,742.20.

The stock market is having a panic attack.

"The cause of this correction is the ostensibly withdrawal of liquidity by central bankers, and consequently rising interest rates".

The rising debt yields initially were seen as weighing on stocks as investors anxious that higher rates would slow down growth.

Delta, Chevron, Hess and D.R. Horton are all more than 10 percent off their 52-week highs as the market retreats. There hasn't been one in two years, and by many measures stocks had been looking expensive.

Kelly said the signs of inflation and rising rates are not as bad as they looked, but after the market's big gains in 2017 and early 2018, stocks were overdue for a drop.

Milligan warned against reading too much into Friday's USA payroll numbers: "There is a long way to go between one monthly figure saying US wages are a little more than expected to saying core inflation in the world economy is moving away". The Nasdaq fell 273, or 3.8 percent, to 6,967. The Russell 2000 index of smaller-company stocks sank 56.18 points, or 3.6 percent, for 1,491.09.

Many investors have anxious that after years of market volatility being suppressed by ultra-low interest rates around the world, the good times were bound to come to a hard landing.

The selling was also fuelled by profit-taking after a blistering January that saw several indexes strike record or multi-year highs, while energy firms were hit by a drop in oil prices.

The rise in bond yields, fuelled by a surging United States economy and corporate earnings, has spooked traders anxious that the Fed will raise borrowing costs more than the three times initially expected this year. Yields have broken out of their 36-year downtrend line. That's making bonds more appealing to investors compared with stocks.

Janet Yellen, who stepped down as Fed chair Saturday, dedicated her four-year term to preventing turmoil in the financial market while tapering monetary easing. The economy added 200,000 jobs and wages grew by 2.9 percent, the most since 2009. Experts have been warning that that wouldn't last forever. That does not mean markets will not keep dropping, as they are wont to do.

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Bristol-Myers Squibb was up 2.2 percent after the drugmaker said a late-stage trial for a lung cancer drug met its main goal.

The market has not had a 5 percent correction for more than 400 days. Just a few weeks ago they had anticipated around two rate hikes this year. The San Francisco bank also agreed to remove four directors from its board.

The S&P fell 8.81 percent that day in 2008. Broadcom was down 1 percent. To jump-start growth, central bankers around the world slashed interest rates and took other steps to push down yields on safe government bonds.

"The selloff is continuing this morning and futures point to a lower opening as investors track rising yields", Peter Cardillo, a chief market economist in a client note. While rising interest rates are largely considered a negative for most industries, the US banking sector will be one of a few industries that will see a sizable benefit from more rate hikes.

The dollar was boosted by the jobs figures and on Monday managed to hold on to the gains it made against the yen, pound and euro.

Spot gold XAU= steadied at $1,334.40 an ounce. Now if you reverse PE (i.e. 1/24.53 or 4.07 per cent), you get what is called the earnings yield.

Among stocks, Wells Fargo fell 9.5 percent in premarket trading after the Fed imposed new regulatory restrictions over compliance issues. Leading political parties in Germany, which is the largest economy in Europe, have struggled to form a government.

In early European trade London dived one percent, while Paris and Frankfurt each shed 0.9 percent.

The MSCI Asia-Pacific Index fell 1 percent.

Hong Kong-listed Tencent plunged nearly two percent Monday, while Sharp dived four percent in Tokyo.

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