Treasuries Rise on Prospect of Fed Buying; Gold Reaches Record

Federal Reserve Chairman Ben S. Bernanke
Federal Reserve Chairman Ben S. Bernanke. Photographer: Andrew Harrer/Bloomberg

Treasuries rose, sending 10-year note yields below 3 percent, after Federal Reserve Chairman Ben S. Bernanke said the central bank may boost purchases of U.S. debt. The euro weakened and gold reached a record amid divisions over steps to halt the debt crisis, while U.S. stocks retreated.

Ten-year note yields slid eight basis points to 2.93 percent at 4 p.m. in New York, snapping a three-day rise. The Dollar Index gained 0.3 percent to 79.640 and the euro slid against 14 of 16 major peers. The Standard & Poor’s 500 Index lost 0.1 percent to 1,223.12. The S&P GSCI Index of commodities rose to the highest since October 2008 as gold closed at a record, silver reached a 30-year high and oil settled at the highest price in 26 months.

Ten-year Treasury yields slid from an almost four-month high after Bernanke said on CBS Corp.’s “60 Minutes” program yesterday that U.S. unemployment may take five years to fall to a normal level and Fed purchases of government debt beyond the $600 billion announced are “possible.” Germany rejected calls to increase the European Union’s 750 billion-euro ($1 trillion) aid fund or introduce joint bond sales, signaling its refusal to bear extra costs to stamp out the debt crisis.

Bernanke’s comments show “things might be not as good as they seem,” said Stanley Nabi, New York-based vice chairman of Silvercrest Asset Management Group, which oversees more than $9 billion. “Look at our fiscal situation, look at Europe. Now if you want to build a positive case, you can do it as well because there are also positive signs in the economy. You need to take a balanced view at this point.”

Positive Reports

An Institute for Supply Management report showed last week that U.S. manufacturing expanded for a 16th month in November. Pending sales of American existing houses unexpectedly jumped by a record 10 percent in October, the National Association of Realtors said Dec. 2. While the Labor Department said on Dec. 3 that American non-farm payrolls expanded 74 percent less than the median economist estimate, the S&P 500 rose 0.3 percent.

The yield on two-year Treasuries dropped four basis points to 0.43 percent. The Dollar Index, which measures the greenback against six of its most-traded peers, rebounded after falling to the most since Oct. 20 on Dec. 3.

The euro weakened 0.7 percent to $1.3320 after reaching a two-week high of $1.3442. Hungary’s forint sank 0.7 percent against the euro after Moody’s downgraded the country’s debt to the lowest investment grade and indicated it may cut the rating to junk. The BUX index of stocks lost 0.7 percent.

Spain, Italy

Spanish and Italian government bonds fell, while German bunds were little changed. The Spanish 10-year yield added 13 basis points to 5.22 percent, while the equivalent Italian yield climbed seven basis points to 4.51 percent. The cost of insuring bonds sold by Italy climbed 8.5 basis points to 217.5, with credit-default swaps for Spain rising 20 basis points to 317, according to CMA, a data provider.

The S&P 500 snapped a three-day advance and retreated from a one-month high. The benchmark gauge has rallied 9.7 percent this year and 20 percent since hitting its 2010 low on July 2. Bank of America Corp., Coca-Cola Co. and AT&T Inc. led losses in 20 of 30 stocks in the Dow Jones Industrial Average today.

Bank of America recommended an asset allocation that is “significantly overweight” stocks and commodities, while “underweight” bonds and cash, saying the bull market in equities that began in March 2009 isn’t over yet, according to a note today.

Bank stocks led declining shares in Europe, as Intesa Sanpaolo SpA and UniCredit SpA, Italy’s biggest lenders, and Spain’s Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA all fell at least 2.2 percent. Hochtief AG gained 4.3 percent in Germany after the construction company said Qatar Holding LLC aims to become a major shareholder.

Cocoa, Gas, Silver

Cocoa for March delivery jumped to $3,065 a metric ton and touched $3,084, the highest price in four months, on speculation that unrest may delay exports from Ivory Coast, the world’s largest grower.

Natural gas futures rose 3.2 percent to $4.488 per million British thermal units, the highest price in four months, after forecasts showed colder-than-normal weather in the U.S., boosting demand for the heating fuel.

Gold futures closed at a record $1,416.10 an ounce, up 0.7 percent.

Silver futures for March delivery topped $30 an ounce on the Comex in New York, extending a rally to a 30-year high.

Crude for January delivery rose 19 cents to settle at $89.38 a barrel on the New York Mercantile Exchange, the highest level since Oct. 7, 2008. Prices have climbed 13 percent this year.