Treasuries fell, with 30-year yields touching the highest level in more than a year, as investors bet the decision by Standard & Poor’s to lift the U.S. credit outlook gives the Federal Reserve more leeway to reduce stimulus. Commodities and U.S. stocks retreated.
Thirty-year Treasury bond yields increased three basis points to 3.37 percent and reached 3.38 percent, the highest since April 2012, while the S&P 500 slipped less than 0.1 percent after swinging between gains and losses during the session. The S&P GSCI gauge of 24 raw materials lost 0.7 percent as corn and wheat tumbled at least 0.9 percent and industrial metals fell. Japan’s Topix surged 5.2 percent and the yen slid 1.1 percent to 98.69 per dollar.
S&P cited receding fiscal risks as it lifted the outlook on the AA+ American ranking from negative. The world’s largest credit rater cut the U.S. ranking from AAA in August 2011, contributing to a global stock-market rout and sending yields on Treasury bonds to record lows. U.S. stocks rose last week as government data showed employers added more jobs in May than economists forecast.
“It was a quite shocking event for the markets when the U.S. was downgraded to negative, so to have that rating repaired is meaningful,” Lawrence Creatura, a Rochester, New York-based fund manager at Federated Investors Inc., which oversees $377 billion, said by phone. “Economic data has been improving gradually and S&P’s upgrade is a recognition of that.”
Ten-year Treasuries also retreated, sending yields up three basis points to 2.21 percent, approaching a 14-month high.
For the first time since 2009, U.S. bond yields are rising at the same time inflation is slowing, providing a cushion for investors in Treasuries whether or not the Federal Reserve slows the pace of its debt purchases.
While 10-year yields reached 2.23 percent May 29, the highest since April 2012, the personal consumption expenditure deflator, the Fed’s preferred gauge of inflation, rose 0.7 percent in April from a year earlier, the smallest increase since 2009. The yield gap between Treasury Inflation-Protected Securities, or TIPS, and non-indexed bonds show investors have cut their expectations for consumer price increases to the lowest level since July.
After losing 2 percent last month, the most since December 2009, according to Bank of America Merrill Lynch bond indexes, Treasuries are offering the highest real yields in more than two years amid 7.6 percent unemployment.
Gauges of industrial, energy, utility and consumer companies led declines among the 10 main industry groups in the S&P 500 today, while telephone and commodity shares advanced. Hewlett-Packard Co., Walt Disney Co. and Home Depot Inc. lost at least 1.3 percent for the biggest declines in the Dow Jones Industrial Average (INDU), while Intel Corp. and UnitedHealth Group Inc. rose more than 1.7 percent to lead gains.
McDonald’s Corp. climbed 1.3 percent on better-than-estimated sales growth in May as the Dollar Menu and breakfast items helped drive the U.S. business. Monsanto Co. jumped 4.5 percent after Macquarie Group Ltd. raised its rating on the world’s largest seed company to outperform. An S&P gauge of 11 homebuilders slumped 2.3 percent as bond yields increased and JPMorgan Chase & Co. cut its rating on Lennar Corp.
Commodities fell for the first time in six days. Brent declined 0.8 percent and West Texas Intermediate oil retreated 0.3 percent to $95.77 a barrel. Corn dropped 2.2 percent to $5.46 a bushel and wheat sank 0.9 percent on speculation dry weather may help planting in the U.S. Zinc, nickel, aluminum and copper lost at least 0.8 percent, while gold increased 0.2 percent to $1,386 an ounce, rebounding from a two-week low, and silver added 0.8 percent.
China’s industrial production rose a less-than-forecast 9.2 percent last month, while export gains were at a 10-month low and imports dropped, data over the weekend showed. China is the biggest buyer of industrial metals and energy.
Japan’s economy expanded an annualized 4.1 percent in the first quarter, compared with a preliminary calculation of 3.5 percent, the Cabinet Office said today.
The Stoxx 600 slipped 0.1 percent after sinking 1.8 percent last week, its third consecutive weekly decline. Severn Trent Plc (SVT) sank 6 percent today, the biggest drop in almost a year, as Borealis Infrastructure Management Inc. and its partners in the LongRiver group abandon a 5.3 billion-pound ($8.2 billion) takeover offer after the U.K. water utility declined to negotiate.
The MSCI Emerging Markets Index fell 0.8 percent, declining for a fourth day and trading at a six-month low. The Hang Seng China Enterprises Index (HSCEI) of mainland companies listed in Hong Kong dropped for a ninth day, the longest losing streak in more than a year, slipping 0.6 percent.
The Borsa Istanbul Stock Exchange National 100 Index sank 2.5 percent and the lira slid 1.2 percent against the dollar. Turkish Prime Minister Recep Tayyip Erdogan warned demonstrators if they remain in the streets, “we’ll have to answer them in the language they understand,” speaking to supporters over the weekend as anti-government protesters rallied in Istanbul’s Taksim Square. The benchmark equity gauge has lost 11 percent this month after demonstrations erupted May 31.
The dollar strengthened against nine of its 16 major peers, while falling 0.3 percent to $1.3258 per euro. The yen depreciated against all 16 peers but the rand.
Currencies of commodity-producing nations slid, with South Africa’s rand sinking 2 percent against the dollar and the Aussie losing 0.4 percent to 94.64 U.S. cents and touching the weakest level since Oct. 4, 2011.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-used currencies excluding the yen, dropped 0.5 percent to 116.35, the lowest level since September. India’s rupee slumped 1.7 percent against the dollar, the Malaysian ringgit sank 1.3 percent and South Korea’s won weakened 1.1 percent.
The cost of insuring corporate bonds with credit-default swaps increased, with the Markit iTraxx Europe Index of contracts linked to 125 investment-grade companies rising 2.5 basis points to 106.3. The gauge dropped 8.9 basis points on June 7, the biggest daily decline since Jan. 2.
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