By Richard Frost and Kyung Bok Cho
Sept. 8 (Bloomberg) -- Asian stocks rallied the most in seven months and Treasuries tumbled as the takeover of Fannie Mae and Freddie Mac buoyed confidence the U.S. will prevent the global credit crisis from deepening.
Standard & Poor's 500 Index futures jumped 3 percent and the MSCI Asia Pacific Index surged 4 percent, Mizuho Financial Group Inc. Yields on the benchmark 10-year Treasury note advanced the most in two months. The yen fell against the euro as investors favored higher-yielding currencies.
``The markets considered Fannie and Freddie to be in too deep to save themselves,'' said Kwon Hyeuk Boo, head of investment strategy at Daishin Investment Trust Management Co. in Seoul, which has about $2.7 billion in assets. ``The U.S. government has shown its firm intention to fix the problem, and this will help ease the credit crunch.''
The government is taking over Fannie Mae and Freddie Mac after the biggest surge in mortgage defaults in three decades threatened to bring down the companies, which make up almost half of the U.S. home-loan market. Investors had worried failures by Fannie and Freddie, which hold more than $1.5 trillion in assets and almost the same amount of debt, would spark further losses at financial institutions around the world.
Mizuho, Japan's biggest bank by assets, and Macquarie Group Ltd., Australia's largest investment bank, rose more than 10 percent, driving a measure of Asian financial stocks up 6.7 percent, the most since October 1998.
U.S. S&P 500 futures expiring in September gained 36.9 points, or 3 percent, to 1,278. More than $17 trillion in global equity value has been wiped out since October as the collapse of the subprime debt market and a U.S. housing recession slowed global economies.
`Confidence Boost'
The dollar dropped against the euro before reports this week on home sales and retail spending, which economists forecast will show declines. The U.S. currency fell to $1.4406 per euro from $1.4267. It rose to 108.78 yen from 107.73 as the Japanese currency slumped.
Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director James Lockhart yesterday put Fannie Mae and Freddie Mac in a government-operated conservatorship, removing their chief executives and eliminating their dividends. The Treasury may buy as much as $200 billion of stock in the firms to ensure they stay solvent.
The cost to protect Asia-Pacific corporate bonds from default fell. The Markit iTraxx Japan index declined 17 basis points to 129, the most since April 2, according to prices from Morgan Stanley.
``This may be the jolt that will help restore long-term confidence among credit investors and it shows the government is willing to do what is necessary to keep the markets functioning,'' said Jon Pratt, Merrill Lynch & Co.'s head of Asia debt origination in Hong Kong.
Bonds Decline
Credit-default swaps protect bonds against default and traders use them to speculate on changes in credit quality. They pay the buyer face value in exchange for the underlying securities should a company fail to adhere to debt agreements.
Treasuries slumped because the takeover gives investors less reason to favor the relative safety of government debt.
The yield on the benchmark 10-year note rose 10 basis points to 3.81 percent, according to bond broker BGCantor Market Data. The price of the 4 percent security due in August 2018 fell 26/32, or $8.13 per $1,000 face amount, to 101 10/32. The last time the yield rose that much was July 25.
``There's a chance that 10-year yields will rise to 4 percent within a month or two,'' said Akira Takei, general manager for international bonds at Mizuho Asset Management Co. in Tokyo, who correctly predicted the advance in bonds in 2007. ``I have a little bit of a bearish view.''
`Bearish View'
Takei, who helps oversee the equivalent of $36.9 billion at the unit of Japan's second-largest bank, swapped longer maturities for shorter ones at the end of August.
In Japan, the 10-year yield rose 9 basis points to 1.525 percent. The yield on the similar-maturity Australian note rose 15 basis points to 5.77 percent.
The yen declined on speculation easier credit-market conditions will encourage so-called carry trades. The yen fell 1.9 percent to 156.71 per euro in Tokyo from 153.67 late in New York on Sept. 5.
In carry trades, investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent benchmark rate compares with 2 percent in the U.S., 4.25 percent in Europe and 7 percent in Australia. The risk to carry trades is that currency moves erase profits.
`Risk Appetite'
``The yen is likely to weaken further,'' said Koji Fukaya, senior currency strategist at the Tokyo unit of Deutsche Bank AG, the world's largest currency trader. ``This is a big release of stress on the global financial system that will help improve risk appetite.''
Crude oil rose from a five-month low on the dollar dropped and the approach of Hurricane Ike delayed Gulf of Mexico production from restarting. Crude oil for October delivery rose as much as 2.6 percent to $108.95 a barrel in after-hours electronic trading on the New York Mercantile Exchange.
To contact the reporters for this story: Richard Frost at rfrost4@bloomberg.net; Kyung Bok Cho; in Seoul at kcho7@bloomberg.net
Posts
No comments:
Post a Comment