Treasury yields, stock futures fall. Treasurys benefited from a flight to safety in European trading and fell to below their level prior to S&P's downgrade of U.S. debt on Friday. The yield on 10-year Treasurys climbed as high as 2.586% early in Asia but fell back to 2.51%. Other safe havens also rose, with spot gold passing $1,700/oz for the first time and hitting $1,714, its 11th record in 19 sessions. The Swiss franc and the yen rose against the dollar and the euro. However, U.S. futures fell after an early comeback attempt from Asian losses failed.
Treasury slams "flawed" S&P. The fall in U.S. bond yields has given credence to the Treasury's assertion that the "collective judgment" of investors "is that the U.S. has the means and political will to make good on its obligations" despite S&P's downgrade. In a blog post, the Treasury criticized S&P's decision, citing the $2T error in the agency's original analysis and the speed with which it changed its "principal rationale...from an economic one to a political one," and made the downgrade anyway. The U.S. also received support from several foreign holders of its debt, including from Japan, South Korea, Russia and France.
Spanish, Italian bond yields fall. Yields on Italian and Spanish bonds fell sharply to well below 6% after the ECB started buying the countries' debt in order to try to stop the eurozone debt crisis from spinning out of control. The bank had indicated it would make the purchases following an emergency session yesterday, saying it would "actively implement" its bond-buying program to address "dysfunctional market segments." However, European shares fell after rising earlier, and while Italian shares were in positive territory, Spain was flat and the U.K., Germany and France were in the red.
Geithner to stay on at Treasury. Tim Geithner, the remaining top official from President Obama's original economics team, will stay on as Treasury Secretary at least until after the 2012 election. Geithner had considered stepping down once the debt ceiling was increased. His decision, made at Obama's request, removes one element of uncertainty for the markets and enables the White House to avoid a fight in the Senate over a successor.
Munis renew debt in Q2 but market waits for downgrades. States, cities and other municipal issuers were able to replace $26B of expiring letter-of-credit agreements and other backstops in the second quarter, Moody's said. Three quarters of agreements were renewed or replaced by a different bank, with the rest mostly refinanced via new bonds or loans. However, the muni-bond market expects S&P to cut its ratings on debt secured by the federal government following the agency's downgrade of the U.S. Matt Fabian of Municipal Market Advisors told Bloomberg this could amount to "hundreds and hundreds" of ratings cuts.
Buffett enters Transatlantic bidding war. Berkshire Hathaway (BRK.A) unit National Indemnity has offered to buy Transatlantic Holdings (TRH) for $3.25B, topping two prior bids. Transatlantic has until tonight to decide on Warren Buffett's proposal of $52 a share, which represents a 15% premium to Transatlantic's closing price of $45.24 on Friday. Berkshire's offer is somewhat of a departure for a company that usually avoids bidding wars. The value of the other offers has dropped as they contain stock elements. An agreed bid from Allied World Assurance (AWH) is worth $2.75B, while an unsolicited proposal from Validus (VR) is worth $2.89B.
AIG to sue BofA for $10B. AIG (AIG) reportedly intends to sue Bank of America (BAC) over hundreds of mortgage-backed securities and will seek to recover more than $10B in losses on $28B of investments. AIG argues that BofA and its Merrill Lynch and Countrywide Financial units misrepresented the quality of the securities. AIG is also preparing similar suits against other major banks, including Goldman Sachs (GS), JPMorgan Chase (JPM) and Deutsche Bank (DB). AIG will join an increasing number of investors seeking redress over toxic mortgage bonds - so far at least 90 suits have been filed, demanding $197B.
Mortgage probes stall. The private-sector actions over mortgage bonds are in contrast to the relatively few cases brought by the Justice Department. Sources said federal criminal investigations into failed lenders IndyMac Bancorp and New Century Financial have stalled, although New York recently opened its own probe into IndyMac. In addition, the DOJ has closed an investigation into Washington Mutual (WAMUQ.PK) after it was dormant for over a year.
45,000 Verizon workers go on strike. Verizon (VZ) has activated a contingency plan to limit disruption after 45,000 unionized workers, mainly at its wireline unit, went on strike following the failure of contract talks. The union has said the concessions the firm wants over healthcare, pensions and work rules are unjustified given that Verizon is highly profitable. The company has argued it needs the concessions to offset the long-term decline of the wireline business.
Q2 home lending slumps. Home lending in the second quarter tumbled as residential originations contracted nearly 20% from a year earlier. Bank of America (BAC), the No.2 lender, was the biggest loser with volume down 29%; Wells Fargo (WFC), the largest lender, was off 24%; and Chase (JPM), the third biggest, fell just 5%. However, Ally Financial experienced a 4% increase.
Two banks closed. Regulators shut two more banks on Friday, bringing the total failures so far this year to 63. The banks closed were in Washington and Illinois, with the combined cost to the FDIC's insurance fund expected to be $160.4M.
Rio Tinto, Mitsubishi bid for full control of Coal & Allied. Rio Tinto (RIO) and Mitsubishi Corp. (MSBHY.PK) have offered to buy the 14% in Australia's Coal & Allied (CAIQF.PK) they don't already own for A$1.49B ($1.56B), valuing the miner at $11.1B. Perpetual Investments, the company's largest institutional shareholder with 6.3%, has backed the bid, making it almost certain the takeover will be completed.
In Asia, Japan -2.2% to 9098. Hong Kong -2.2% to 20491. China -3.8% to 2527. India -1.8% to 16990.
In Europe, at midday, London -1.7%. Paris -1.8%. Frankfurt -2.2%.
Futures at 7:00: Dow -2%. S&P -2.5%. Nasdaq -2.4%. Crude -3.7% to $83.69. Gold +3.4% to $1708.30.
Monday's economic calendar:
10:00 Employment Trends Index
Earnings Results: Today Premarket