GLOBAL - Central banks injected huge sums of money into the money markets today in a bid to prevent from liquidity from seizing up but turbulence in the markets is still driving the price of equities down and bonds prices up as all eyes are now on AIG.
Equity markets were still turbulent today across the globe but the US stock markets appear to holding losses better than elsewhere, in part because the market is now talking up the need for an interest rate cut from the Federal Reserve.
The European Central Bank today loaned €70bn through a one-day money market auction in the hope it will continue to support banks and financial firms through the turbulence of huge selling in the listed markets.
The Federal Reserve has also now pumped $50bn (€35bn) into the US market and the Bank of England has acted similarly by more than doubling yesterday's injection of £20bn (€25bn) to £56bn.
The UK's FTSE 100 index crossed through the psychological 5,000 barrier earlier today - something it has not done since 2005 - but had pulled back a fraction to be down 177 points or 3.42% to 5026 by 16:15 CEST, while Germany's Dax had crossed through the 6,000 barrier and was down 122 points or 2% to 5942, and the French CAC 40 was also down 2% at 4083 points.
Bigger worries for pension funds may be in the holdings of corporate bonds, however, which have seen varied and turbulent activity depending on the category of bonds after American Insurance Group (AIG) received a ratings downgrade from Moody's this morning.
AIG saw its share price drop over 60% yesterday from $12.09 to $4.76 before trading opened today but it continued its fall today and had down an additional 48.5% to $2.45 after S&P lowered its long-term counterparty rating to A-.
Pension fund investment consultants have pointed out the bigger concern may be in relation to companies like AIG as its derivative position could leave many companies exposed to risk should it go under, while the indices pension funds's asset managers use as benchmarks to their portfolios could be shaken by the activity in financials.
Data pointed out by consulting firm Redington Partners shows one of the most popular indices used by UK pension funds, the Merrill Lynch UN00 index (sterling non-government bond index) is made up of just 0.23% Lehman bonds, but holds at least 1% of AIG bonds and HBOS - now being put under pressure by shareholders selling stocks - makes up 2.16% of the index.
Any further shift in the status of financial services firms could therefore begin to affect the makeup of benchmarks being used by pensions funds, consultants note.
Index fluctuation also depends to be determined by the make-up of the index itself but the Merrill Lynch EX00 total return index has seen its value shift from 182.8 on Friday to 182.557 yesterday while the Merrill Lynch EMU 2 total return index was at 185.319 by close of business yesterday.
AIG has sought to strengthen its position by taking a $20bn loan from the New York State, having asked the Federal Reserve for $40bn.
But one area of the market which investors might not have anticipated being affected today is exchange-traded notes, which are different to exchange-traded funds.
The London Stock Exchange suspended trading in ETF Securities this afternoon while the market waits to see what will happen to AIG.
Prior to this intervention, the value of ETF Securities' products were down substantially in trading today after the company was forced to put out a statement confirming its offerings are backed by AIG.
The statement confirmed its commodities, metal, oil and gold bullion stocks are "backed by matching contracts from AIG Financial Products Corp. and guaranteed by American International Group, Inc".
The trickle of declarations now surfacing from European firms also reveals most companies had exposure to Lehman's fixed income in some way, as Aegon, Dexia, Fortis, ING and Nordea among others have confirmed they have fixed income exposure worth more than €200m.