Toronto Stock markets closed sharply lower Wednesday as prices for U.S. Treasury bonds slumped — putting upward pressure on interest rates — while the likelihood increased that General Motors Corp. will file for creditor protection.
GM said bondholders rejected its proposal to exchange $27-billion (U.S.) in debt for 10 per cent of the company's stock, ahead of a Monday deadline for a government-ordered restructuring. GM shares tumbled 20 per cent to $1.15, although the rejection didn't come as a shock.
“I don't know that anybody was really expecting something miraculous to happen here,” said Jennifer Radman, associate portfolio manager at Caldwell Securities.
“It was against the odds from the start.”
Toronto's S&P/TSX composite index moved 143.74 points lower to 10,142.16, led by falling financial stocks.
A surge in financials had generated a 216-point gain Tuesday following a well-received quarterly report from Bank of Montreal.
The TSX Venture Exchange lost 4.17 points to 1,092.99. The Canadian dollar declined 0.13 of a cent (U.S.) to 89.33 cents.
In New York, the Dow Jones industrial average dropped 173.47 points to 8,300.02.
The Nasdaq composite index declined 19.35 to 1,731.08 while the S&P 500 index shed 17.27 to 893.06.
The slide accelerated as the benchmark 10-year U.S. Treasury note tumbled, pushing its yield up to 3.66 per cent, from 3.55 per cent late Tuesday. The drop came after a Treasury auction of $35-billion in five-year notes, part of $101-billion in debt Washington is issuing this week.
“And you're going to relate that to the stock market, where all of a sudden you're going to look for higher yields in [bonds], which pushes stock prices down,” said Fred Ketchen, manager of equity trading at Scotia Capital.
In addition to raising borrowing costs for the government, rising debt yields could hamper an economic recovery.
The Toronto financial sector stepped back 2.9 per cent ahead of earnings reports Thursday from Canadian Imperial Bank of Commerce Bank of Nova Scotia, Toronto-Dominion Bank and National Bank, and Friday from Royal Bank of Canada.
Shares in those banks had gained at least 5 per cent Tuesday, but surrendered more than 2 per cent Wednesday.
Laurentian Bank of Canada reported Wednesday that quarterly earnings came in at $21.2-million, down from $25.1-million a year earlier.
The Toronto energy sector was little changed as the July crude oil contract added $1 to $63.45 per barrel on the New York Mercantile Exchange. Ahead of an OPEC meeting Thursday, Saudi Oil Minister Ali Naimi said there is no need for the cartel to reduce production.
The TSX gold sector stepped back 1.9 per cent as the June bullion contract in New York was unchanged at $953.30 an ounce.