The Fed comments that initially sent stock prices plummeting were far from dramatic, warning that the economy faced “significant downside risks’’ and citing “global financial strains,’’ in particular. None of that came as news. But delivered by Fed policy makers, the message caught the attention of the world.
“I think the Fed saying it, even though everyone knows it, is meaningful,’’ said Erik Weisman, a portfolio manager at MFS Investment Management in Boston. “The Fed doesn’t say things like that lightly. They know if they say something negative the markets could react. I think it tells you how concerned they are.’’
Major stock indexes around the world plunged by 4 percent or more, especially in big European markets, where political and financial leaders have been unable to resolve debt problems in Greece that could extend to other countries.
The leading stock market in France - where banks hold billions of dollars of Greek debt - slumped 5.25 percent. Markets in Germany fell about 5 percent, while stocks in Great Britain sank 4.7 percent.
The cautious words from the Fed, evidence of a slowing economy in China, and ongoing anxiety over Europe’s ability to manage its sovereign-debt crisis all helped to drive investors out of riskier holdings and into very-low-risk alternatives.
Traders seeking safer havens drove interest rates on US Treasury securities - which move in the opposite direction of prices - to extraordinary lows. Investors buying 10-year Treasury notes yesterday accepted a paltry yield of 1.72 percent, a record low. The yield on 30-year Treasury bonds fell to 2.8 percent, the lowest since the darkest days of the financial crisis at the end of 2008.
