German bond yields tumble as investors retreat to safer assets

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The 4.1 percent drop was the worst for the S&P since August 2011.

Thus, the Dow Jones Industrial Average fell by 666 points on Friday and by more than 400 points (and counting) earlier today. The Dow is now down 4.1 percent from a record high struck on January 26.

All major indexes in Europe fell: the UK's FTSE 100 .FTSE dropped 1 percent, France's CAC 40 .FCHI 0.8 percent and Germany's DAX .GDAXI 0.6 percent.

Both the inflation and the inflation-indexed components of Treasury yields have been less sensitive to their determinants (oil and the expected fed funds rate) in recent months.

Since stocks began climbing during the depths of the Great Recession in 2009, their rise has been supported by some of the lowest global interest rates seen since World War II.

Bond strategists were unwilling Friday to predict what lies ahead for interest rates this week after the markets' unusual volatility in the past week.

What traders might be ignoring is that any threat to the economy from higher yields or swooning stocks might themselves prompt the Fed to slow the pace of tightening - making the market's current panic potentially premature. Stronger household consumption and consumer confidence would certainly make it easier for businesses to raise prices for their products and services.

"It's likely the pullback has further to go as investors adjust to more Fed tightening than now assumed", said Shane Oliver, Sydney-based global investment strategist at AMP Capital Investors Ltd., which oversees about A$179 billion ($141 billion).

That was the reason why bonds yields had soared in many European economies such as Italy and Greece during the debt crisis a few years ago.

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Gundlach said overall, the US stock market is an odds-on favorite to turn in a negative return for 2018.

The prices are being impacted by fears of inflation rising and a perception that central banks will increase rates sooner than previously thought.

Many investors have anxious that after years of market volatility being suppressed by ultra-low interest rates around the world, the good times were bound to come to a hard landing. With rates going up, money is not as cheap. But higher wages could lead to higher inflation, creating new challenges for the Fed to manage, perhaps prompting it to raise rates more quickly.

Weeks after Lehman Bros. failed in September 2008, lawmakers in the House of Representatives rejected a $700 billion economic rescue plan.

Australian shares look set to open sharply lower after key markets around the globe tumble, with the worst falls on Wall Street.

That has only added to concerns over equity income plays, which targeted high-dividend stocks as an alternative form of "fixed income" to record low-yielding bonds.

The MSCI Asia-Pacific Index fell 1 percent. That was more than twice as much as Monday's fall. We are at the rate levels where many wise market prognosticators, such as Jeff Gundlach at Doubleline and Ray Dalio of Bridgewater, have said the wheels will start coming off the risk-asset cart.

Our perceptions are distorted, in part, by thinking about swings in terms of points rather than in terms of percentages. "Most of the recent moves were driven by the United States, with Treasury yields trading at nearly 2.90 percent, with at least probably some marginal willingness on behalf of investors to scale into the market again at those levels".

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