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Global stocks fall on rate fears | Global stocks fall on rate fears |
(about 2 hours later) | |
Global stock markets have fallen after US government bond yields rose to their highest level in five years, stoking fears of higher borrowing costs. | Global stock markets have fallen after US government bond yields rose to their highest level in five years, stoking fears of higher borrowing costs. |
With higher bond yields seen as a signal of higher interest rates to come, investors are concerned about the knock-on impact on corporate profits. | With higher bond yields seen as a signal of higher interest rates to come, investors are concerned about the knock-on impact on corporate profits. |
After the Dow Jones fell 130 points, or 1%, on Tuesday, Germany's Dax was down 0.7% in Wednesday lunchtime trading. | |
London's FTSE 100 index was less affected, down by just 2.1 points. | |
France's Cac 40 index had lost 8.2 points, while Japan's Nikkei had earlier ended the day down 28 points, or 0.2%. | |
Cost of deals to rise? | |
The yield on the benchmark US Treasury 10-year bond rose to 5.27% in New York last night, its highest level in five years. | The yield on the benchmark US Treasury 10-year bond rose to 5.27% in New York last night, its highest level in five years. |
The rise in bond yields will push up the price of long-term borrowing, which in turn will increase the cost of borrowing for the world's big banks and private equity firms. | |
This is likely to feed through to higher interest rates for mortgage holders, and discourage company takeovers. | |
"If those longer-term rates continued to rise, the frenzy of private equity-fuelled takeovers could fizzle - because the cost of financing takeovers would exceed the cash flows of the relevant target companies," said BBC Business Editor Robert Peston. | |
He added that the situation was being exacerbated by the fact the Chinese were "switching hundreds of billions of dollars out of bonds and into equity-related investments". | |
China has more than $1 trillion (£508bn) in foreign exchange reserves, which up until now have been mainly held in US Treasury bonds. |