Global sell-off of stocks and bonds as Fed signals end to stimulus
CLEAR signals from the US Federal Reserve that it will soon stop pumping money into the global economy have sparked sharp falls in bonds, shares and commodities across the world.
World stocks saw the largest one-day drop for 12 months, falling around 2pc.
European stocks sank the most in almost 11 months, extending a global rout, after Federal Reserve chairman Ben Bernanke said it might end bond purchases next year.
National benchmark indices fell in every western European market except Iceland.
Germany's DAX slid 2.5pc and France's CAC 40 lost 2.6pc, while the UK's FTSE 100 retreated 2.4pc.
Here, the ISEQ Overall Index snapped a four-day winning streak to close down 1.3pc.
Things were even worse in developing markets. MSCI's benchmark index for emerging equities slumped more than 3.3pc and shares across the Asian Pacific region outside Japan recorded their biggest daily drop since late 2011.
Among other unwanted milestones, gold and silver tumbled to near three-year lows, while South African 10-year bond yields posted their biggest one-day rise in a decade.
Spanish bonds led a decline in European government securities as Mr Bernanke's remarks also sparked a global rout in fixed-income investments.
Ireland's 10-year yields surged along with those of Spain, Italy and Portugal. The NTMA was forced to pay far more to borrow three-month money at a treasury bill auction yesterday morning than it had done a month ago. There was also less demand for the bills.
German 10-year yields climbed to the highest level since February as investors fled to safe havens.
"The Fed move makes the price of most asset classes look wrong," said Harvinder Sian, a senior fixed-income strategist at Royal Bank of Scotland in London.
He added: "Higher-yielding European assets, like Portugal, are getting hurt and Italy and Spain aren't far behind.
"In a world where they've been doing well, it doesn't take a lot to shake the market."
The initial catalyst for the sell-off was Mr Bernanke's surprisingly strong commitment to end the central bank's asset buying by the middle of 2014. That sent 10-year US Treasury note yields to 15-month highs.
"The Fed has reduced uncertainty about some of its plans and that is probably one of the key differences to what the markets' expectations were heading in to the meeting," said Ken Dickson, investment director at Standard Life.
He added: "I think it is quite reasonable that the tapering will begin later this year, but what looks a little bit more optimistic is that the process will be finished by the middle of next year."