Investors fled to safe-haven government debt and the US dollar as Spain’s plight, concerns about economic growth and renewed market talk of a possible Greek exit from the eurozone drove investment decisions.
The euro slid as low as $1.2067, its weakest since Jun 2010, but later pared losses to trade slightly higher at $1.2131. Against the yen, the euro slid near a 12-year low at 94.22 but later trimmed losses.
US crude futures fell about 3%, and yields on US, German and British government debt hit record lows. But yields on Spanish government debt hit euro-era highs, easing later in the session.
Five-and 10-year German government bond yields set new lows and US Treasury-note yields hit their lowest since the early 1800s. Ten-year US Treasuries yields fell as low as 1.3977 percent, last trading up 6/32 in price to yield 1.4381 percent.
Spanish media reported that up to six regions may seek aid from the central government after Valencia asked for funds on Friday. That request sent Spanish bonds to a euro-era high of more than 7.5%, above the 7% level many investors view as sustainable.
How Spain’s 17 indebted autonomous regions, locked out of international debt markets, refinance €36bn in debt this year has been a major source of concern for investors ever since they missed deficit targets last year.
“Given the market reaction on the back of the news that more and more regions are looking to tap into the liquidity fund ... it will be very difficult for Spain to circumvent further support for itself,” said Norbert Aul, a rate strategist at RBC Capital Markets.
Spanish economy minister Luis de Guindos has insisted Spain does not need a full sovereign bailout, such as those approved for Greece, Ireland and Portugal.
The IMF dismissed a weekend news report that it may refuse to continue supporting Greece as it prepares for talks with the new Greek government on its international bailout.
Worry over Greece resurfaced with international lenders scheduled to gather in Athens today to discuss the terms of further rescue payments after its prime minister said the country was mired in a “Great Depression.”
“All it does is it brings up that whole crisis again — all that tells you, it really didn’t go away,” said Ken Polcari, managing director at ICAP Equities in New York.
Wall Street shares trimmed losses by afternoon after falling nearly 2% percent.
The Dow Jones industrial average was down 90.02 points, or 0.70%, at 12,732.55. The Standard & Poor’s 500 Index was down 10.69 points, or 0.78%, at 1,351.97. The Nasdaq Composite Index was down 28.96 points, or 0.99%, at 2,896.34.