✂ Fed’s first rate cut since 2020: Use our free Stock Screener to find new opportunities fastExplore for FREE

GLOBAL MARKETS-Shares fall on Western government debt fears

Published 05/28/2009, 05:20 AM
Updated 05/28/2009, 05:32 AM

* MSCI world equity index backs off from 2009 highs

* Western govt debt fears knock U.S., euro zone bonds

* Moody's U.S. ratings affirmation boosts dollar

By Sebastian Tong

LONDON, May 28 (Reuters) - Global shares backed off from 2009 highs on Thursday, dragged down by investor concern over mounting Western government debt which overshadowed optimism voiced by U.S. President Barack Obama that the worst was over for the world's largest economy.

Fears over the spiralling debt taken on by the U.S. to revive economic demand against the backdrop of a record $1.75 trillion budget deficit fuelled a sell-off in U.S. government bonds, driving the yield on the benchmark 10-year Treasury note to a six-month high.

Euro zone government bonds also came under pressure, with June bund futures 39 ticks lower from Wednesday's settlement close at 118.99 by 0850 GMT.

Concern that rising yields would mean higher borrowing costs for businesses and consumers overwhelmed any encouragement that investors might have taken from comments from Obama that the U.S. economy was showing signs of stabilising and had "stepped back from the brink" after suffering its worst economic crisis in decades.

The MSCI world equity index slid 0.8 percent, off from the six-month high it hit on May 20, while the FTSEurofirst 300 index of pan-European blue-chip shares eased 1.4 percent.

"We have rallied in the last few months on a sense of optimism. Reality is setting in. The level of debt throughout the world especially in the U.S. and the UK are finally beginning to worry people," said Mark Priest, senior equities trader at ETX Capital.

Emerging stocks proved more resilient, clinging onto recent gains that have taken them to seven-month highs, while emerging market debt spreads widened 8 bps but hovered at October levels of 447 bps over Treasuries,

The dollar firmed against a basket of major currencies, after Moody's Investors Services on Wednesday affirmed its top "AAA" rating for the U.S. economy.

But the ratings agency also warned that the rating would come under pressure if Washington failed to reduce debt levels.

U.S. crude oil stayed near its six-month highs, peeking above $63 a barrel, helped by data from the American Petroleum Institute showing a larger-than-expected drawdown in crude stocks last week. (Additional reporting by Dominic Lau; Editing by Toby Chopra)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.