DJIA futures were down over -180 earlier today, but currently up +13.....
Stocks Tumble, Bonds Rally on Dubai; Credit-Default Swaps Soar
By David Merritt
Nov. 26 (Bloomberg) -- European stocks fell the most in seven months and bonds jumped as Dubai?s attempt to reschedule its debt rattled investors seeking higher returns in emerging markets. The dollar slid to a 14-year low against the yen.
Europe?s Dow Jones Stoxx 600 Index retreated 3.3 percent at 5 p.m. in New York as a gauge of volatility posted its steepest surge in a year. The Shanghai Composite Index slumped 3.6 percent, the largest drop since August, and Brazil?s Bovespa Index slipped 2 percent. Credit-default swaps tied to debt sold by Dubai rose as much as 135 basis points to 575 according to CMA DataVision. U.S. markets are closed today for the Thanksgiving holiday.
Dubai World, the government investment company burdened by $59 billion of liabilities, roiled markets around the world yesterday by seeking to delay repayment on much of its debt. The dollar?s slump prompted Finance Minister Hirohisa Fujii to say Japan?s government is watching currencies ?very closely,? while traders said the Swiss central bank sold the franc after it climbed to the highest value against the euro since June.
?Dubai isn?t doing risk appetite any favors at all and the markets remain in a vulnerable state of mind,? said Russell Jones, head of fixed-income and currency research in London at RBC Capital Markets. ?We?re still in an environment where we?re vulnerable to financial shocks of any sort and this is one of those.?
Sovereign Debt
The Dubai announcement drove up the cost of protecting emerging-market sovereign debt against default. Contracts linked to Saudi Arabia climbed 18 to 108, while Bahrain rose 22.5 to 217, CMA prices show. Debt swaps linked to Abu Dhabi government bonds increased 23.5 to 160, Vietnam rose 35 to 248, Indonesia climbed 25 to 227 and Russia added 13.5 to 205.5.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
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