Bonds Tumble With Stocks as Gold Drops in Rout on Fed

Bonds and stocks fell around the world, with shares in emerging markets sinking the most in 20 months, after the Federal Reserve said it may phase out stimulus and as China’s cash crunch worsened. Gold led commodities lower and Treasury 10-year yields reached a 15-month high.
The 10-year Treasury note yield climbed three basis points to 2.38 percent at 9:55 a.m. in London after jumping 17 basis points yesterday, as borrowing costs surged from New Zealand to Germany. The MSCI All-Country World Index lost 1.2 percent and Standard & Poor’s 500 Index futures slid 0.6 percent. Corporate credit risk surged to the most in 10 months in Asia while in Europe benchmark indexes reached the highest since April 5. The S&P GSCI gauge of raw materials dropped 1.5 percent, as gold retreated to the lowest level in more than two years.

Chairman Ben S. Bernanke said the Fed may start reducing bond purchases that have fueled gains in markets globally, and end the program in 2014 should risks to the U.S. economy abate. China’s benchmark money-market rate climbed to a record and a private report showed manufacturing shrank at a faster pace this month. U.S. data today is expected to show improvement in U.S. manufacturing and the housing market.
“Many investors were hopeful that the party of cheap, easy money will go on for the next two years and here’s the Fed signaling the bar will close soon,” said Jonathan Ravelas, chief market strategist at Manila-based BDO Unibank Inc., the largest bank by assets in the Philippines. “A contraction in China is going to worsen the hangover.”
Yields Climb
Australia’s 10-year yield rose as much as 23 basis points to 3.65 percent, a level unseen since March 15, and New Zealand’s 10-year rate surged 30 basis points to 4.09 percent, the biggest jump since Oct. 2008.
Germany’s 10-year bund yield climbed as much as 12 basis points to 1.68 percent, a four-month high. Spanish bonds stayed lower, erasing six days of gains, as the nation sold 4.02 billion euros ($5.3 billion) of debt maturing in 2018, 2021, and 2023, compared with a maximum target of 4 billion euros.
Volatility in Treasuries as measured by the Bank of America Merrill Lynch MOVE Index (MOVE) was at 86.89 yesterday, the highest since June 2012.
The dollar strengthened against all of its 16 major peers, surging 1.8 percent to 98.25 yen and appreciating 0.6 percent to $1.3211 per euro.
The Australian dollar dropped for a fifth day amid the prospect of reduced Fed stimulus and fading growth in China, the nation’s biggest trading partner. It slid 1.3 percent to 91.72 U.S. cents and reached 91.64, the weakest since September 2010.
Randgold Slides
The Stoxx Europe 600 Index (SXXP) slid 1.8 percent as all 19 industry groups retreated. Randgold Resources Ltd., a producer of the precious metal in Africa, led materials stocks lower, sinking 5.5 percent. BHP Billiton Ltd. and Rio Tinto Group, the world’s biggest mining companies, lost more than 3.5 percent.
The number of shares changing hands in Stoxx 600 companies today was 33 percent greater than the 30-day average, according to data compiled by Bloomberg. The VStoxx Index (V2X), which measures the cost of options hedging against moves in the Euro Stoxx 50 Index, climbed 6.8 percent.
The decline in S&P 500 (SPX) futures indicated the U.S. gauge will extend yesterday’s 1.4 percent drop. Ebix Inc. tumbled 26 percent in pre-market New York trading as Goldman Sachs Group Inc. terminated an agreement to acquire the insurance-software maker after federal prosecutors opened an investigation into allegations of intentional misconduct.
Home Sales
Reports today may show U.S. home sales climbed and jobless-benefit claims were little changed. Purchases (ETSLTOTL) of previously owned houses probably climbed 0.6 percent in May to a 5 million annualized rate, according to the median forecast of economists surveyed by Bloomberg ahead of data from the National Association of Realtors. Jobless claims rose to 340,000 last week from 334,000 the prior period, economists said.
The MSCI Emerging Markets Index (MXEF) slid 3.2 percent, the most since Oct. 3, 2011, on a closing basis. Benchmark gauges in Turkey and Indonesia tumbled more than 3 percent, India’s Sensex fell 2.6 percent and Russia’s Micex index lost 1.6 percent.
The Hang Seng China Enterprises Index slid 3.3 percent, erasing all gains since the third round of quantitative easing was announced on Sept. 13. The preliminary reading of 48.3 for a Chinese Purchasing Managers’ Index released today by HSBC Holdings Plc and Markit Economics compares with the 49.1 median estimate in a Bloomberg News survey of 15 economists.
China’s seven-day repurchase rate, a gauge of interbank funding availability, rose to the highest since at least 2006. The central bank has refrained from using reverse-repos to inject funds into the interbank market since Feb. 7.
Sell-Off
Investors are pulling money from emerging markets at the fastest pace in two years. More than $19 billion left funds investing in developing-nation assets in the three weeks to June 12, the most since 2011, according to EPFR Global.
The cost of insuring against losses on corporate and sovereign bonds in the Asia-Pacific region surged to the highest since Aug. 2. The Markit iTraxx Asia index of credit-default swaps on 40 investment-grade borrowers outside Japan soared 18.5 basis points to 157.7 basis points.
In Europe, default swaps linked to 125 investment-grade companies increased to a two-month high, with the Markit iTraxx Europe Index adding 9.5 basis points to 116.9. The Markit iTraxx Crossover Index of contracts on 50 companies with speculative-grade ratings jumped 36.3 to 479.5, the highest since April 4.
Gold Tumbles
Gold for immediate delivery lost as much as 2.9 percent to $1,312.68 an ounce, the lowest price since Jan. 28, 2011. Holdings (GDTRGOLD) in the SPDR Gold Trust, the world’s largest exchange-traded product backed by bullion, fell below 1,000 metric tons for the first time in four years. Silver plunged as much as 6 percent to $20.1287 an ounce, the lowest since Sept. 14, 2010, and palladium declined 1.5 percent, retreating for a sixth day, the longest streak of losses in almost a year. Gold futures declined 4.8 percent in New York.
Copper for delivery in three months retreated 2 percent to $6,822 a metric ton on the London Metal Exchange, and earlier touched $6,818, the lowest price in seven weeks. Nickel dropped as much as 2.7 percent to $13,815 a ton, the lowest price since June 2009.