Major world equity markets were mildly negative yesterday, the euro edged down and gold rose as traders kept an eye on tensions between Ukraine and Russia and the pace of growth in China.
Credit market investors, meanwhile, were jumping all over Puerto Rico’s $3.5 billion municipal bond sale, which attracted huge interest from many types of funds, including hedge funds and high-net-worth names.
Markets have taken a break from recent volatile trading, and moves in most major stock markets were relatively muted.
An index of global stocks slipped, while the benchmark US S&P 500 was lower as well.
“The market has growing pains here, and rightfully so,” said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.
“Basically we are at high levels, there are a lot of warnings out there, a lot of signs the market may be topping out.”
The US Treasury market was muted, with the 10-year yield slightly lower to 2.769 per cent, rising 3/32 in price.
The activity in credit markets was focused on the municipal sector, where the island of Puerto Rico sold $3.5 billion in debt to shore up its struggling finances.
The bonds sold at an eight per cent coupon with a yield of 8.727 per cent, levels much less expensive than expected in that market, and several other Puerto Rico bonds were seeing additional buying as non-traditional investors, including hedge funds, took the opportunity to grab this high-yield debt.
“For investors, this is a great return, and we’ve heard there was a lot of high net worth interest in this deal.
“These are tax-sensitive investors and they were heavily pitched on it,” said David Tawil, co-founder of Maglan Capital in New York.
The Dow Jones industrial average fell 46.85 points or 0.29 per cent, to 16,371.83, the S&P 500 lost 6.07 points or 0.32 per cent, to 1,871.1 and the Nasdaq Composite dropped 11.139 points or 0.26 per cent, to 4,323.309.
Economic figures were limited yesterday. A sharp fall in wholesale sales surprised investors and led to a build-up in inventories in January, particularly in autos and machinery stocks.
Wholesale inventories rose 0.6 per cent. This is a positive for first-quarter growth, though economists expect the weak sales figure to be reversed.
The euro fell against the dollar and the yen yesterday after European Central Bank (ECB) vice president Vitor Constancio told investors that they may have missed the message on policy that rates are set to remain accommodative for some time to come.
Strong trade data from Germany, the region’s economic powerhouse, helped the country’s DAX index outperform, as it rose 0.9 per cent.
“Recent events, especially concerning Russia and Turkey, have made the outlook less certain, and their impact will only be felt in a few months from now,” said Markus Huber, a senior sales trader at Peregrine & Black.
Tensions over Ukraine continued to build yesterday. With diplomacy at a standstill, Ukraine’s acting president announced the formation of a volunteer national guard, while ousted leader Viktor Yanukovych insisted he remained the country’s legitimate leader.
Turkish assets have been hit by political scandals and a power struggle between Prime Minister Tayyip Erdogan and a US-based Muslim cleric.
Against a basket of currencies, the US dollar edged higher by late morning to trade up 0.01 per cent.
Gold extended early gains as Ukraine strengthened the bid in that market. The yellow metal was at $1,346 an ounce.
Brent crude, Europe’s regional benchmark, edged up 34 cents to $108.44 a barrel, while US oil slipped 81 cents to $100.32.