Ten-year U.S. Treasury yields rose above 2.5 percent for the first time since 2011 amid concern the Federal Reserve will reduce bond purchases, while rates on German bunds reached a 14-month high. U.S. stocks rebounded following the worst plunge in 19 months and the dollar rallied.
The rate on the benchmark 10-year U.S. note jumped 12 basis points to 2.54 percent to extend the biggest weekly increase in a decade. Rates on similar maturity German debt increased to 1.73 percent. The Standard & Poor’s 500 Index added 0.3 percent to 1,592.43 following a two-day plunge of almost 4 percent. U.S. equity trading volume surged to the highest level since October 2011. The dollar strengthened against 11 of 16 major peers, while oil and natural gas led the S&P GSCI Index down 1 percent to a two-month low.
More than $1.8 trillion was erased from the value of global equities yesterday after Fed Chairman Ben S. Bernanke said bond buying that has fueled gains in markets around the world may be trimmed this year should risks to the U.S. economy continue to decrease. The Fed may cut its monthly bond purchases by $20 billion to $65 billion in September, economists said in a Bloomberg survey. The benchmark 10-year note yield surged 41 basis points this week, the most since 2003.
“Bernanke has moved the range higher, and we still have liquidation going on the back of what he said,” said Sean Murphy, a trader at Societe General in New York, one of the 21 primary dealers that trade with the Fed. “There is value around these levels, but with an unwind like this there is still a lot of confusion on where we should be.”
Thirty-year U.S. bond yields jumped eight basis points to 3.59 percent, the highest since August 2011 on a closing basis. Two-year rates increased four basis points to a 14-month high of 0.36 percent.
The Dollar Index added 0.6 percent to 82.38 to extend its three-day increase to 2.2 percent, the most over similar time frames since December 2011.
The dollar is proving to be investors’ only haven as stocks, commodities, bonds and other currencies fall in unison for the first time since 2011.
Concern governments will curtail aid to economies pushed the MSCI All-Country World Index down 3.2 percent this week, spurred declines in gold, copper and oil, and sent bonds of all types lower this week as currencies from Australia to Mexico fell against the dollar.
Rallies that have lifted everything from Japanese banks to Italian government debt during a four-year global expansion are being revalued amid signs central bank stimulus through quantitative easing, or QE, is poised to slow. Global equities posted the biggest two-day retreat in 19 months after Bernanke said he may phase out stimulus and China’s cash crunch worsened.
The average yield to maturity on the more-than-20,000 securities in the Bank of America Merrill Lynch Global Broad Market Index rose to 2.03 percent yesterday, the highest since April 26, 2012. BofA-Merrill’s MOVE index climbed to 96.02 on June 20, the highest level since Dec. 9, 2011. It has averaged 60.8 this year.
The S&P 500 (SPX) swung between gains and losses earlier after yesterday’s 2.5 percent slump, the biggest drop since November 2011. The index is down about 4.6 percent from its record on May 21, the day before Bernanke told Congress the Fed could begin to taper asset purchases should the job market continue to stabilize. The index has trimmed its year-to-date gain to less than 12 percent.
This week’s selloff was a “normal correction” amid evolving Fed policy and created opportunities in bank stocks, according to Laszlo Birinyi. Birinyi, among the first to advise buying shares before the bull market began in 2009, bought Citigroup Inc. and Goldman Sachs Group this week, he said in an interview with Trish Regan and Tom Keene on Bloomberg Television’s “Street Smart.”
“To me this is just a normal correction reacting to some unexpected news,” Birinyi, president of Birinyi Associates Inc., said. “I still think you’re in a bull market.”
About 10.7 billion shares changed hand in the U.S. today, the most since October 2011, according to data compiled by Bloomberg (MVOLUSE), as futures and options contracts expire in a process known as quadruple witching that can lead to unpredictable price swings.
Gauges of consumer staple, utility and health-care stocks rose at least 0.9 percent to lead gains among eight of the 10 main groups in the S&P 500, while technology and commodity companies retreated. Procter & Gamble Co., Coca-Cola Co. and Merck & Co. added at least 1.5 percent for the biggest gains in the Dow Jones Industrial Average.
Oracle Corp., the largest maker of database software, fell 9.3 percent for its biggest drop in three months after sales missed estimates for a second straight quarter as customers shifted spending to competitors’ Web-based business tools. Facebook Inc. increased 2.6 percent after adding video to its Instagram photo-sharing service for smartphones.
The Stoxx Europe 600 Index capped its biggest weekly decline in 13 months as Greek Prime Minister Antonis Samaras lost one of his two coalition partners and investors weighed the outlook for central bank stimulus. The losses left the index trading at 12.4 times the projected earnings of its companies, the lowest valuation since April, according to data compiled by Bloomberg.
The VStoxx Index, an indicator of European equity volatility, added 1.9 percent to remain at the highest level since February.
National Bank of Greece SA plunged 11 percent as Greece’s ASE Index tumbled 6.1 percent today, the most since October. SAP AG dropped 2.7 after Oracle’s report. Groupe Eurotunnel SA slipped 6.5 percent as brokers cuts their ratings on the stock.
Greece’s 10-year yield jumped 64 basis points to 11.30 percent, the highest since April, as Prime Minister Antonis Samaras’s closure of the country’s state broadcaster ERT risked disrupting the coalition government.
The MSCI Emerging Markets Index (MXEF) slid 0.8 percent and extended this week’s drop to 5.5 percent, the worst slump in more than a year. Benchmark gauges in Poland, South Korea, Indonesia, Taiwan and the Philippines fell more than 1 percent. International money managers pulled a combined $1.2 billion from Asian funds this past week, a fifth straight week of outflows, according to Citigroup Inc. Russia’s Micex Index rose 0.1 percent after yesterday’s 2 percent slide.
China’s overnight repurchase rate dropped 442 basis points, or 4.42 percentage points, to 8.43 percent in Shanghai, according to a daily fixing compiled by the National Interbank Funding Center. The seven-day rate fell 227 basis points today to 8.50 percent, the largest decline since January 2012.
The People’s Bank of China used reverse-repurchase agreements to inject funds into selected banks, Hexun reported today, citing an unidentified person close to the central bank.
Spot gold rebounded 0.7 percent to $1,294.18 an ounce after earlier today touching the lowest level since September 2010 following yesterday’s 4.9 percent slide. Bullion is down more than 7 percent this week, the most since September 2011. August futures gained 0.5 percent in New York following yesterday’s 6.4 percent slide.
Silver for July delivery gained 0.7 percent to $19.959 an ounce in in New York, still down about 9 percent this week.
West Texas Intermediate crude for August delivery lost 1.5 percent to $93.69 a barrel in New York, with volume 18 percent higher than the 100-day average.
To contact the editor responsible for this story: Lynn Thomasson at email@example.com