Treasuries Drop as Dollar Gains; Most U.S. Stocks Decline
Treasuries slid, sending 10-year yields to a four-month high, while the dollar rose and gold tumbled as the Federal Reserve’s improved economic assessment caused investors to reduce bets on more monetary easing. Most U.S. stocks fell a day after the biggest rally of 2012.
The U.S. 10-year yield increased 14 basis points to 2.27 percent and the dollar strengthened versus all 16 major peers. The Standard & Poor’s 500 Index retreated 0.1 percent to 1,394.28 at 4 p.m. in New York after yesterday closing at its highest level since June 2008. The Dow Jones Industrial Average rose for a sixth day, its longest rally in more than a year, ending up 16.42 points at a more-than four-year high of 13,194.1. Gold futures slid to an eight-week low.
The Fed said yesterday that strains in global financial markets have eased and the labor market is gathering strength. The central bank said separately that 15 of the nation’s largest 19 banks may keep adequate capital levels even in a recession. European industrial output rose 0.2 percent in January from the previous month. Chinese Premier Wen Jiabao said relaxing property curbs could cause “chaos” in the market.
“Some worry that with the Fed’s upgrade of the economic environment, they may not do a bond purchase program on the long end,” said Ira Jersey, an interest-rate strategist at Credit Suisse Group AG in New York, one of 21 primary dealers that are required to bid at the auctions.
The yield on the 30-year U.S. Treasury climbed 14 basis points to 3.41 percent, the highest since October. The government today sold $13 billion auction of 30-year bonds at yield of 3.383 percent, the highest since August. The Fed’s 21 primary dealers that are required to bid at the sale were awarded 56.3 percent of the securities, compared with an average of 52 percent for the past five sales. Two-year yields increased four basis points to 0.39 percent.
The S&P GSCI Index of commodities lost 0.8 percent as silver and gold led declines among 21 of 24 raw materials. Copper dropped the most in a week, losing 1.4 percent to $3.848 a pound, on concern demand will ease in China. Gold for April delivery declined 3 percent to $1,642.90 an ounce. Oil for April delivery slid 1.2 percent to settle at $105.43 a barrel in New York after stockpiles at Cushing, Oklahoma, climbed to the highest level in nine months.
More than two stocks retreated for each that rose on U.S. exchanges. MetLife Inc. slid 5.8 percent after a plan for a share buyback was rejected by the Fed. The Dow Jones Transportation Average lost 1.4 percent as railroads CSX Corp. and Norfolk Southern Corp. tumbled at least 2.9 percent. Apple Inc. advanced 3.8 percent to a record $589.58 after Morgan Stanley raised its share-price estimate to $720.
Highest Since 2007
The Dow Jones Industrial Average surged 218 points yesterday and closed at the highest level since 2007, while financial shares in the S&P 500 rallied 3.9 percent as a group, the biggest gain of the year. The Fed said that it expects “moderate economic growth” and predicted the unemployment rate “will decline gradually.”
“Investors globally believe that macro risks have subsided” because of central bank actions, Tony Crescenzi, a strategist at Pacific Investment Management Co., said today in a radio interview on “The Hays Advantage” with Kathleen Hays and Vonnie Quinn. PIMCO manages the world’s biggest bond fund in Newport Beach, California. “The data as it’s accumulated has convinced more and more investors that the U.S. economy is on firmer footing than many previously thought.”
JPMorgan Chase & Co. and Wells Fargo joined banks raising dividends and authorizing share repurchases after passing the stress tests. The results of the Fed’s tests showed that almost three years of economic expansion have helped U.S. banks raise profits, rebuild capital and increase liquidity after the collapse of Lehman Brothers Holdings Inc. in 2008.
Citigroup Inc., the lender that took the most government aid during the financial crisis, said it will resubmit its capital plan to regulators after failing to meet some minimum standards in the tests. Citigroup has repaid $45 billion in TARP money. Chief Executive Officer Vikram Pandit said in a memo to employees today that the bank still plans a “meaningful” payout to shareholders.
“I was expecting all of the banks to pass, but when you look at the terms, the stress tests were so onerous that a modest miss really isn’t all that discouraging,” said William Fitzpatrick, a Milwaukee-based financial-services analyst at Manulife Asset Management, whose team oversees $800 million.
The Stoxx 600 (SXXP) advanced for a second day as three shares gained for every two that declined. Barclays Plc and Credit Suisse Group AG climbed at least 3.9 percent to lead a rally in bank stocks. EON AG (EOAN), Germany’s largest utility, jumped 6 percent as earnings exceeded analysts’ estimates. Legal & General Group Plc surged 7.2 percent after the fourth-biggest U.K. insurer by market value boosted its dividend as full-year profit rose.
The dollar advanced 0.4 percent to $1.3026 against the euro and strengthened 1 percent versus the yen. The Dollar Index, a gauge of the currency against six major peers, increased 0.5 percent to the strongest level since January.
The pound strengthened versus 14 of 16 major peers and the yield on the 10-year gilt jumped 17 basis points to 2.34 percent.
Britain is proposing to revive “perpetual gilts,” first used in the wake of the 1720 South Sea Bubble crisis, to allow the government to borrow for as long as possible at record-low rates, according to two people familiar with budget discussions. Chancellor of the Exchequer George Osborne will use his March 21 budget to announce a consultation on introducing bonds of up to 100 years and reviving debt with no fixed maturity.
The two-year Italian yield slipped four basis points to 1.997 percent as the government sold 6 billion euros ($7.8 billion) of bonds today, with borrowing costs on its three-year debt falling to the lowest since October 2010.
The MSCI Emerging Markets Index (MXEF) was little changed. Benchmark indexes in Turkey, Poland, Hungary and South Korea gained at least 1 percent, offsetting declines in China and Brazil. Russia’s Micex Index added 0.8 percent.
China’s Shanghai Composite Index (SHCOMP) sank 2.6 percent, the biggest drop since Nov. 30. A gauge tracking Chinese property stocks in Shanghai slid 3.7 percent. Anhui Conch Cement Co. (600585), the nation’s biggest maker of the building material, fell 3.3 percent, and Poly Real Estate Group Co. (600048), China’s second-largest developer by market value, slumped 3 percent.
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