UPDATE 1-Stock futures slump, bonds rally as Greek default looms
(Adds details throughout, comments from portfolio manager, background)
By David Gaffen
June 28 - U.S. equity futures dropped sharply and bond futures rallied at the beginning of trading on Sunday as the chances increased that Greece would default on its debt and exit the euro zone.
Greece said it would introduce capital controls and keep its banks closed on Monday after international creditors refused to extend the country's bailout and people queued to withdraw cash.
The fear of contagion caused investors to aggressively buy safe U.S. government debt in anticipation that Greece would miss its June 30 deadline to make a 1.6 billion euro (US$1.8 billion) payment to the International Monetary Fund. U.S. stock futures were hit hard, down 1.6 percent, and the euro fell in a move away from risk assets.
"I think the brunt of the risk-off trade will be borne by European exchanges," said Mohannad Aama, portfolio manager at Beam Capital Management in New York. "We will likely have a selloff in our markets, but I think we will be in much better shape than many markets in Europe."
Asian shares look set to open lower, despite the Chinese central bank's monetary easing on Saturday, as investors are seen flocking to safer assets on the spectre of an unprecedented debt default by a euro zone country. European markets were expected to be volatile when those markets open.
The euro fell nearly 2 U.S. cents to a one-month low in early Asia Pacific trade, and U.S. 10-year Treasury futures rose 1 27/32 in active trading early.
The impending default on the IMF loans leaves Greece sliding towards a euro exit, and it has unforeseeable consequences for Europe's grand project to bind its nations into an unbreakable union by means of a common currency. Continuación...