By Josie Cox and Andrea Tryphonides
Jitters over the financial future of Greece roiled global
markets on Friday, with equities falling sharply and demand surging
for assets considered safest during times of stress such as German
government bonds.
The Stoxx Europe 600 index ended the day 1.7% lower, mirroring
similar losses across individual country indexes. Athens' main
stock exchange fell 3%, taking declines so far this year to almost
12% and over the last 12 months to over 41%, making it one of the
world's worst performing indexes.
In the U.S., stocks opened lower and continued selling off in
early trading. The Dow Jones Industrial Average recently was off
1.5%, or 263 points, at 17,842. The declines in the Standard &
Poor's 500 and Nasdaq Composite were more moderate.
Strategists said that a lack of progress in negotiations between
beleaguered Greece and its international creditors had
substantially increased the risk of Greece defaulting on its debt
and even exiting the euro.
"In the absence of a deal in the next few weeks, the government
might not be able to avoid default, which, we fear, would likely
raise the risk of Grexit," economists at UBS wrote in a note.
"The government's budget situation is increasingly precarious
while the negotiations on the reform program are continuing only
very slowly," they added.
"Athens will have to give in to its creditors demands" if it
wants to avoid default, said Eirini Tsekeridou, a fixed income
research analyst at Swiss private bank Julius Baer, adding that
only "real gamblers" would currently have any exposure to the
country.
On Friday, the yield on Greece's 10-year bonds was at 12.71%,
close to a two-year high, while two-year yields were at 26.37%,
close to their highest since being issued. Yields fall as bond
prices rise.
An inverted yield curve, where shorter-term debt yields more
than longer-dated bonds, signals that investors foresee a very high
risk of default.
Exacerbating Friday's selloff in equities and ballooning
risk-aversion were fears surrounding China, with the world's second
largest economy allowing fund managers to lend stocks for
short-selling to increase the supply of shares, the Securities
Association of China said on its website on Friday.
The Chinese stock market slumped over 5% in post-close trading,
weighing on sentiment in Europe.
"Monday seems like a long way away at the moment, but there are
fears that we could see a sharp sell off in Asia at the start of
the week, which markets in Europe already appear to be
anticipating," said Jeremy Batstone-Carr, chief economist at
Charles Stanley in London.
German government bonds, broadly seen as a low-risk haven for
investors during times of stress, rose sharply to fresh record
highs, extending gains earlier this week which were triggered by
the European Central Bank reiterating its commitment to a massive
quantitative easing program.
The yield on the country's benchmark 10-year government bond
traded at 0.05%, breaking through Thursday's all-time low.
Investors said that it was now only a matter of time before the
yield on those bonds turns negative.
In currency markets, the euro was trading marginally lower
against the dollar at $1.075, though traders said this was more to
do with dollar strength than euro weakness, after data showed that
U.S. consumer prices increased for the second consecutive month in
March. By contrast, figures showed that consumer prices across the
European Union fell for a fourth straight month in March.
In commodity markets, Brent crude lost 0.1% to trade at $63.88 a
barrel. Gold, also considered a safe asset in unstable market
conditions was up 0.5% at $1,203.90 per troy ounce.
Write to Josie Cox at josie.cox@wsj.com and Andrea Tryphonides
at andrea.tryphonides@wsj.com