ETFs Lag on Eurozone Debt and Economic Recovery Worries

February 8th at 10:00am by Tom Lydon

Worries about the security of the economic recovery as well as lingering concerns about the debt situation in Europe have stocks and exchange traded funds (ETFs) wavering between positive and negative territory this morning.

Not only is Europe entering into an increasingly worrisome debt crisis, but now there are concerns that the economy isn’t equipped to deal with a crisis of this scope, reports Jack Ewing for The New York Times. The eurozone’s central bank’s only responsibility is to temper inflation and lacks any formal tools to help its struggling member economies – particularly Greece, Spain and Portugal. Market Vectors Double Short Euro ETN (NYSEArca: DRR) is down 0.4% this morning. [More on Currencies.]

The Federal Reserve is preparing to outline its exit strategy that will be a blueprint to follow once it’s been determined that the economy has made sufficient recovery, reports Jon Hilsenrath for The Wall Street Journal. At that point, the Fed will raise interest rates, which currently stand around 0.25%. PIMCO 1-3 Year U.S. Treasury (NYSEArca: TUZ) is flat this morning. [Bond ETFs: Beware of a Bubble.]

Consumer credit fell again in December for the 11th consecutive month. Mostly, Americans have been paying down credit card debt while increasing borrowing for cars and other durable goods, reports Daniel Wagner for the Associated Press. The mixed figures give hope that consumer spending may once again resume, but that for now, they’re still holding back.

Corporate bond spreads are the highest they’ve been since November, rising at the fastest pace in more than two months. The spike is on the heels of concerns that the state of government finances will hinder the recovery and make it more challenging for companies to make their debt payments, report Sapna Maheshwari and John Detrixhe for Bloomberg. The yield between corporate bonds and government debt widened 0.04% to 1.69%, the widest since Nov. 27. iShares iBoxx $ Investment Grade Corporate Bond (NYSEArca: LQD) is flat today; it yields 5.4%. [More on Bonds.]