New York, June 20 - US credit and equity markets were hammered on Thursday morning as the global sell-off continued, with major central banks seeming to have little ability to control the rush of volatility and the perception of increased risk in most global assets outside of the US dollar.
US stocks tumbled more than 1% at the open, the yield on the 10-year Treasury spiked more than 8bp after a 17bp jump yesterday, CDX credit indices weakened more than 4% on the heels of a 7% rout on Wednesday, and gold dropped more than 5% to a three-year low as a wave of nervousness unleashed by Federal Reserve Chairman Ben Bernanke washed over markets around the globe.
In what may have been the most troubling development, China’s overnight repo rate - the interest rate for interbank lending, which is crucial to keep the markets liquid - spiked to a whopping 25%, reminiscent of the credit market freeze right before the collapse of Lehman Brothers and AIG that kicked off the last global financial crisis in earnest.
The CDX IG20, which weakened 7% yesterday in the largest intraday drop since November 2011, was 2.8bp wider at 90.5bp.
“There’s no standout underperformer. Everything is just wider and tanking, ” said one banker.
“The US is definitely suffering more than Europe, where there is definitely less chance of steep interest rate rises. In Europe, there seems to be more index-hedging. But in the US, there is more of a feel that there is just outright selling.”
The volatility has also brought bond issuance to a virtual standstill in both the United States and Europe. (Reporting by John Balassi and Natalie Harrison; Additional reporting by the IFR team; Editing by Marc Carnegie)