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Current Futures: Dow -6.00, S&P -0.90, NASDAQ -1.25
Asian markets are posting modest declines, following the negative close on Wall Street. The possible bankruptcy of GM, coupled with Treasury yields rising very fast made investors reduce their exposure to the equity markets.
The U.S. car-manufacturer GM is getting very close to bankruptcy, after it failed to reach an agreement with its bondholders. GM proposed to its creditors to swap debt for equity stakes, but the company was unable to reach an agreement with all parties involved in the transaction. TheLFB-Forex.com Trade Team said that it is not hard to see how the bondholders refused such an offer, since GM has been losing money for years, time in which the company was unable to come to a realistic restructuring plan.
If GM’s bankruptcy really happens, it will become the largest in the history of the U.S., and probably the most expensive too. For now, this position is shared by Lehman Brothers and Nortel, which at its peak had a market value of $366 billion.
The possible bankruptcy has renewed fearers that the financial sector is not as strong as previously thought, and contributed to the 2% decline of the S&P and Dow Jones indexes. Moreover, investors also sold the longer-term notes yesterday, as the Treasury is planning to sell a record amount of debt this year.
TheLFB-Forex.com Trade Team said that Treasury notes declined in a day of negative equity markets, something that rarely happens. On Wednesday, the spread between the 2- and the 10-year Treasury notes became the steepest on record, suggesting that investors may start to fear inflation. A huge deficit ran by the government, combined with the Fed expanding its balance sheets are known to spark long-term inflation, and this is now being priced in the financial markets, TheLFB-Forex.com Trade Team said.
Overnight, the Japanese Nikkei declined 19.82 points (0.21%) to 9,418.95. The Australian S&P/Asx fell 45.00 points (1.18%) to 3,756.10.
Crude oil for June delivery was recently trading at $62.90 per barrel, lower by $0.55.
Gold for June delivery was recently trading lower by $6.80 to $948.40.
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