The Ebola Effect

Stocks Drop as Sovereign-Debt Crisis Spreads; Greek Bonds Slump

April 28 (Bloomberg) -- Stocks extended a global slide and commodities dropped, while yields on Greek two-year notes jumped to a record 26 percent and the euro traded near a one-year low against the dollar as sovereign-debt concern spread.

The MSCI World Index of 23 developed nations’ stocks fell 0.8 percent at 12:36 p.m. in London. Greece’s ASE Index rebounded 1.8 percent as the securities regulator banned short- selling on the Athens bourse. Portugal’s PSI-20 Index dropped the most since October 2008. The extra yield investors demand to hold Greek 10-year bonds instead of benchmark German bunds surpassed 8 percentage points. Nickel and copper fell. Futures on the Standard & Poor’s 500 Index rose 0.3 percent.

Stocks, commodities and the euro tumbled, while Treasuries rallied yesterday when S&P lowered Greece’s debt rating to junk and Portugal by two steps. European Central Bank President Jean- Claude Trichet and International Monetary Fund Director Dominique Strauss-Kahn will meet German politicians in Berlin today to promote a financial rescue plan. The euro rebounded amid speculation that the IMF will provide more aid to Greece.

“The danger is that the authorities lose control of the situation and that sovereign yields rise to levels that make a bailout for Greece even more difficult,” Gary Jenkins, a strategist at Evolution Securities in London, wrote in a note. “Unless we see some stabilization soon, a number of governments may find it very difficult to access the markets at a yield that makes any financial sense for them or, in some cases, at all.”

Stocks pared their decline as European Union spokesman Amadeu Altafaj told reporters in Brussels today that “Greece’s needs will be met in time.”

Two-Year Note

The yield on Greece’s two-year note has risen almost fivefold this month on concern euro-region support for the country will come too late to prevent a default. The yield soared almost 600 basis points at one stage today. Ireland’s jumped 90 basis points to 4.64 percent, Portugal’s increased 93 basis points to 6.24 percent and Spain’s rose 20 basis points to 2.26 percent.

Credit-default swaps on Greece, Portugal and Spain advanced to records, according to CMA DataVision. Contracts on Greece climbed 42 basis points to 865.5, Portugal jumped 20 to 406 and Spain increased 2 basis points to 211, CMA prices show.

“It’s not a question of the danger of contagion. Contagion has already happened,” Angel Gurria, secretary general for the Organization for Economic Cooperation and Development, said in a Bloomberg television interview today in Berlin. “This is like Ebola. When you realize you have it you have to cut your leg off in order to survive.”