Treasury Yields Fall to Records as Stocks Cap May Slump

Treasury note yields fell to record lows, while U.S. stocks capped the worst monthly drop since September, amid concern over Europe’s debt crisis and a slowdown in American economic growth. Oil extended the biggest monthly decline since 2008.

The 10-year note’s rate decreased as much as nine basis points to an all-time low of 1.53 percent and rates on five-year and seven-year U.S. debt also dropped to records. The Standard & Poor’s 500 Index closed down 0.2 percent, paring a plunge of as much as 1.1 percent following a report that the International Monetary Fund was discussing potential plans to help Spain. Oil lost 1.5 percent to $86.53 a barrel and sank 17 percent this month. The euro was little changed near a two-year low of less than $1.24. German 30-year yields fell to a record 1.74 percent and slid below Japanese rates for the first time.

Treasuries rallied this month while global stock markets lost more than $4 trillion amid concern Greece will exit the euro and Spain’s finances will deteriorate further, while U.S. economic data trailed forecasts. First-time claims for U.S. jobless benefits unexpectedly increased and a separate report today showed the U.S. economy grew at a 1.9 percent annual rate in the first quarter, down from a 2.2 percent prior estimate.

“One of the questions that I’ve been getting is ’is this all about Europe?’” Ira Jersey, director of U.S. rates strategy at Credit Suisse Securities USA, told Bloomberg Television. “It’s not now. It’s about global growth, including U.S. growth, and that’s clearly one of the reasons you’re seeing the rally today” in Treasuries, he said.

Rates Slide

Seven-year note yields pared losses after sliding to a record for a second day, trading down four basis points at 1.02 percent after dropping as low as 0.98 percent. The rate on 30-year bonds fell as low as 2.58 percent, the lowest since December 2008.

“If you look at the global marketplace, we are the supermarket of safety,” said William Larkin, a fixed-income money manager who helps oversee $500 million at Cabot Money Management Inc. in Salem, Massachusetts. “We’re talking about an elevated level of fear. This is mainly driven by growing uncertainty in Europe. People are saying ’I can buy the Treasury and I know my money will be returned to me.’”

Losses in the S&P 500 today were led by commodity and technology companies. The same groups led the slump in May, along with financial companies, with each group tumbling more than 7.8 percent in the month. The S&P 500 lost 6.3 percent in May, trimming its year-to-date gain to 4.2 percent.

Market Leaders

Caterpillar Inc., Exxon Mobil Corp. and Intel Corp. lost at least 1 percent to lead the Dow Jones Industrial Average down 26.41 points to 12,393.45. The Dow fell 6.2 percent in the month and is up 1.4 percent in 2012.

Joy Global Inc. sank 5.4 percent as the mining equipment company cut forecasts. Facebook Inc. rallied 5 percent, paring its plunge since it went public on May 18 to 22 percent. Talbots Inc. surged 89 percent as it agreed to be bought by Sycamore Partners.

Stocks tumbled in morning trading after initial jobless claims grew by 10,000 to 383,000 last week, topping the median estimate of 370,000 in a Bloomberg survey of economists. Companies added 133,000 workers in May, according to figures from ADP Employer Services, trailing the median economist forecast for a 150,000 advance, the same as estimated for tomorrow’s monthly government jobs report.

The Institute for Supply Management-Chicago Inc. said today its business barometer decreased to 52.7, the lowest since September 2009, and below the median economist estimate of 56.8.

Losses Pared

U.S. equities pared losses in mid-day trading after the slide briefly dragged the S&P 500 below 1,300, a technical level watched by traders as a potential area of support.

The S&P 500 recovered further as the Wall Street Journal reported that the International Monetary Fund is discussing contingency plans to aid Spain in the event the country can’t afford to bail out Bankia group. The IMF is not preparing financial aid for Spain, nor has the country asked for a loan, a spokesman for the fund said.

“There’s been no request for financial assistance from Spain and the IMF is not making plans for financial assistance to Spain,” Gerry Rice, the IMF’s director of external relations, told reporters in Washington today.

Equities also pared losses as a Greek poll showed New Democracy, the largest pro-bailout party, taking a lead over anti-bailout party Syriza.

Sell in May

This month’s slide in stocks echoed losses in the previous two years when declines of as much as 19 percent began after April peaks. For the third straight year, concern Europe’s debt crisis will curb the global economic recovery is driving stocks down, with investors speculating Greece may leave the euro and Spanish banks will need a bailout.

The S&P 500 may rebound almost 3 percent in June based on the average size of moves following past May declines of 4 percent or more, Bespoke Investment Group said.

The benchmark gauge has fallen 4 percent or more in May on 15 occasions since 1928, followed by an average June increase of 2.8 percent, according to data compiled by Bespoke. The index rose in June 60 percent of the time following such moves, the data show.

The Stoxx Europe 600 Index retreated 0.4 percent today to extend its May drop to 6.8 percent, the biggest monthly decline since August. ABB Ltd. fell 2.9 percent after the head of the company’s low-voltage subsidiary said demand from China and Italy was lackluster. Holcim Ltd. tracked European construction stocks lower on concern that China’s economy is slowing. Logica Plc surged 69 percent after CGI Group Inc. agreed to buy the computer-services provider for 1.7 billion pounds ($2.6 billion).

German Rates

The yield on the German 10-year bund decreased seven basis points to a record 1.20 percent, with the two-year rate holding near zero. Greece’s 10-year yield jumped 70 basis points to 30.83 percent, rising for the third straight day. Spain’s 10-year yield decreased 10 basis points to 6.56 percent after yesterday reaching a record high above benchmark German bunds.

Soybeans, coffee, wheat gasoline and oil led losses in 19 of 24 commodities tracked by the S&P GSCI Index, which sank 1.2 percent to the lowest level since October. The dollar strengthened against 13 of 16 major peers, while the euro retreated against eight and advanced against eight.

Asian Markets

The MSCI Asia-Pacific Index slid 0.3 percent today and fell 10 percent in May, its biggest monthly loss since October 2008. The Nikkei 225 Stock Average (NKY) dropped 1.1 percent as Japan’s factory output gained 0.2 percent in April from the previous month, missing the median estimate of 26 economists surveyed by Bloomberg for a 0.5 percent increase.

The MSCI Emerging Markets Index slipped 0.1 percent today and slumped 12 percent this month, its worst May performance since a 14 percent slide in May 1998.

The BSE India Sensitive Index declined 0.6 percent after government data showed the economy grew 6.5 percent in the year ended March 31, less than the 6.7 percent projection in a Bloomberg survey. The Shanghai Composite Index fell 0.5 percent. Indonesia’s Jakarta Composite index tumbled 2.2 percent, the most among Asian benchmark indexes. The BUX Index surged 2.2 percent in Budapest.

To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; Susanne Walker in New York at swalker33@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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