Traders fearful of a rupture in Europe's financial system retreated Wednesday from risky investments. They punished stocks and fled to the safety of U.S. bonds, pushing the yield on the benchmark 10-year Treasury note to a record low.
Major U.S. stock indexes fell more than 1 percent. European stocks fell even more, and the euro dropped to a nearly two-year low against the dollar. Borrowing rates for Italy and Spain, both of which are seen as the next problem cases in Europe's debt drama, rose sharply as traders dumped bonds issued by those governments.
Rising demand for low-risk, easily tradable securities pushed the yield on the 10-year Treasury note to 1.64 percent from 1.74 percent late Tuesday. German government bond yields, also seen as safe, turned lower.
The Dow Jones industrial average plunged 147 points to 12,433. The Dow has had a miserable May. It's down 5.9 percent for the month, putting it on track this week to end its first losing month since September.
Concerns about Europe seemed to lurk around every corner: the European Commission said consumer confidence fell sharply in the region last month. Spaniards withdrew money from their banks, spreading fear about that nation's ability to go on without bailouts. Spain's main stock index fell two percent.
An opinion poll in Greece showed that the far-left Syriza party is gaining support ahead of key elections. Syriza opposes the system of bailouts and sharp budget cuts that have kept Greece afloat but also punished its economy. If the party wins, Greece may be forced to exit the euro currency. The shockwaves could topple nations that have received bailouts, like Portugal, and those that might need them, like Italy.
Amid the tumult, Europe's executive branch called on the 17 nations that use the currency to create a "banking union" that can centrally oversee and -- if needed -- bail out the sector.
Read more at BusinessWeek.com