Bund yields hit low as Greek debt plunges

Thursday 21:30 BST. Both equities and the dollar retreated as Greek borrowing costs hitting fresh highs set a sour tone for markets while German bond yields hit fresh lows.

Investors were fretting that Greece may default as negotiations with creditors to release the next slug of financial aid appeared to be making little progress.

Lacklustre US data this week has stalled the dollar's advance and news of a milder-than-expected bounce for housing starts did little to change that on Thursday.

"The dollar index has failed to reach a new high since briefly breaking above 100 on March 13," said Camilla Sutton, of Scotiabank. "There is a building and important case for a temporary stalling in the broad US dollar strengthening trend.

"For instance global stimulus, including the impact of loose policy, low oil prices, low yields and currency depreciation across much of the globe, appears to be beginning to rebalance the global dynamic - this is an important shift."

The dollar index fell 0.7 per cent to 97.61, pulling further back from the recent 12-year high just above 100.

Weighing on markets were worries about Greece as yields on the Greek bond maturing in July 2017 jumped 231 basis points to a post-restructuring high of 26.92 per cent.

"Sentiment in Europe dropped on Thursday amid heightened concerns of a Grexit after Greece reportedly asked for an extension from the IMF over its next debt payment, and got declined," said Jasper Lawler, of CMC Markets.

"Neither the desperation from Greece in asking for an extension, nor the hardline approach from the IMF in denying it bode well for a resolution," he added.

In contrast, the yield on German 10-year Bunds fell 2bp to just 0.085 per cent - having earlier touched 0.073 per cent, its most meagre payout ever - as "haven" flows combine with the European Central Bank's ongoing €60bn-a-month bond-buying programme to crush eurozone yields.

It was notable that the euro - which in the past has tended to fall at times of anxiety over Greece - rose 0.8 per cent to $1.0769 but it was a move that reflected broad weakness in the session for the greenback. The single currency was marginally weaker against the Swiss franc and flat against sterling.

The Xetra Dax in Frankfurt led weakness in European stocks. The German benchmark retreated 1.9 per cent, pushing the FTSE Eurofirst 300 down 0.9 per cent from 15-year highs as weakness in banks and media stocks took their toll.

The S&P 500 in New York slipped 0.1 per cent even as traders welcomed results from Netflix and Goldman Sachs, leaving the Wall Street benchmark 13 points shy of its record close, touched at the start of March.

A so-far generally well-received first-quarter earnings season - recent analyst downgrades have set the bar low - has been underpinning Wall Street of late, as have hopes that meek US economic data will encourage the Federal Reserve to push back the timing for when it starts raising interest rates.

US bond markets reacted in more sanguine fashion to the housing starts data, 10-year Treasury yields flat at 1.89 per cent.

The softer dollar helped some metals with copper adding 1.7 per cent to $6,060 a tonne. But gold was softer, down $3 to $1,198 an ounce.

Brent crude was changing hands at $63.90 a barrel, near a high for 2015 and up 0.9 per cent on the session, following news of a drop in US oil production.

The sour mood contrasted with earlier action in China, where stocks surged to multiyear peaks as the country's bull run rumbled on.

The Shanghai Composite jumped 2.7 per cent to its best level since March 2008.

It has popped nearly 30 per cent in the year to date on hopes Beijing will introduce further monetary and fiscal stimuli to support a cooling economy.

Hong Kong's Hang Seng added 0.4 per cent, taking its 2015 gains to nearly 18 per cent.

Both markets continue to experience elevated trading volumes, as more buyers from the mainland take an interest in equities.

Citigroup noted earlier this week that Chinese bank deposits total $19.5tn, or two-and-a-half times the market capitalisation of the Shanghai and Hong Kong markets combined. If the cash goes to find a new home, the rapid ascent in these stock markets could continue.

"Excess savings with fewer places to seek return makes equities attractive," analysts led by Markus Rosgen wrote. "Given that [China's] GDP growth has slowed there is less of a need to channel these savings towards investment/capex."

In Australia, Sydney's S&P/ASX 200 rose 0.7 per cent as resources stocks advanced.

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