Treasuries Decline on Fed Speculation as Most Stocks Rise

Yen Weakens, Asian Stocks Fluctuate on U.S. Data; Grains Advance
Reports due today are forecast to show improvements in U.S. industrial sector, following gross domestic product data in France and Germany that came in better than economist estimates yesterday. Photographer: Daniel Acker/Bloomberg

Treasuries fell, sending 10-year yields to an almost three-month high, while most U.S. stocks advanced as investors weighed economic data to gauge the potential for more stimulus from the Federal Reserve.

The 10-year rate rose seven basis points to 1.81 percent at 4 p.m. in New York. The Standard & Poor’s 500 Index added 0.1 percent to 1,405.53, while the Stoxx Europe 600 Index slipped less than 0.1 percent after falling as much as 0.6 percent. Standard Chartered Plc climbed after settling a money-laundering probe. The euro weakened against 14 of its 16 major peers. Soybeans and gasoline rallied more than 2 percent, leading the S&P GSCI Index of commodities up 1 percent.

The Fed next month will hold off from a third round of bond buying, known as quantitative easing, amid better economic figures, Goldman Sachs Group Inc. said in a report. U.S. industrial production increased in July, Federal Reserve data showed today, while a government report yesterday showed retail sales grew more than forecast. Other reports today indicated the cost of living in the U.S. was little changed in July while manufacturing in the New York area unexpectedly contracted.

“You’re getting back-and-forth data that sometimes confirm the potential for QE3 like today and yesterday brings it into question,” Andrew Slimmon, Chicago-based managing director of global investment solutions at Morgan Stanley Smith Barney, said in a phone interview. His firm has $1.7 trillion in client assets. “There is going to be no other expected major news between now and when the Fed meets on Aug. 31. There will be a lot of conjecture back and forth about what they are going to do.”

The Citigroup Economic Surprise Index for the U.S., which measures how much data is beating or trailing the median forecasts in Bloomberg surveys, climbed to an almost four-month high of minus 12.1 yesterday after sliding to this year’s low of minus 65.3 on July 19. The index was at minus 19.1 today.

International Demand

Yields on 30-year bonds increased eight basis points to 2.92 percent, the highest level since May.

International demand for U.S. financial assets fell in June from the previous month’s inflows, as investors saw Europe’s leaders moving toward a resolution of their financial crisis. Net buying of long-term equities, notes and bonds totaled $9.3 billion during the month, a drop from net purchases of $55.9 billion in May, the Treasury Department said. Economists surveyed by Bloomberg News projected net buying of $40 billion of long-term assets, according to the median estimate.

German bunds and U.K. gilts declined. Germany’s 10-year yield climbed 10 basis points to 1.56 percent, surpassing 1.5 percent for the first time since July 4. The rate of similar-maturity British notes jumped eight basis points to 1.68 percent, the highest in more than a month.

Default Risk

The cost of insuring European corporate debt rose from a five-month low, with the Markit iTraxx Crossover Index of credit-default swaps on 50 mostly junk-rated companies increasing eight basis points to 583.

The euro dropped 0.3 percent to $1.2288 and lost 0.1 percent versus the yen.

Among U.S. stocks, Deere & Co. retreated 6.3 percent after trading after the largest maker of farm equipment cut its full-year earnings forecast after fiscal third-quarter profit that trailed behind estimates. Abercrombie & Fitch Co. rallied 9 percent and Target Corp. gained 1.8 percent after profit topped analysts’ estimates. Staples Inc. tumbled 15 percent after reducing its forecast amid slower growth.

Swings Narrow

The S&P 500 has fluctuated near the 1,400 level for the past seven trading sessions. Intraday swings narrowed to a daily average of 0.7 percent from Aug. 6 through yesterday, the smallest fluctuation over a comparable period since January 2011, according to data compiled by Bloomberg. The index has rebounded about 10 percent from a five-month low on June 1.

U.S. equity volume this week reached the lowest level since at least 2008 excluding holidays and volatility slid to a five-year low as vacationing traders awaited policy clues from the Fed’s summit at the end of the month.

About 4.5 billion shares changed hands on all venues on Aug. 13, the fewest in data compiled by Bloomberg going back four years that excludes the days surrounding New Year’s, Christmas, Thanksgiving and Independence Day. Volume was about 4.8 billion shares today, still 28 percent below the average level of the year.

The Chicago Board Options Exchange Volatility Index, known as the VIX, sank to 13.70 on Aug. 13, the lowest level since June 2007. The VIX rebounded 8.4 percent yesterday and slipped 1.5 percent to 14.63 today.

Volatility Bets

Investors are piling into securities that gain should equity volatility increase, a bearish bet on stocks that was last popular when the S&P 500 climbed above 1,400 in March.

Outstanding shares jumped to a record for the three most-used exchange-traded securities that profit from volatility gains in U.S. stocks, according to data compiled by Bloomberg.

The S&P 500 may reach 1,500 this year as the economy picks up momentum in the fourth quarter, according to Byron Wien, vice chairman of Blackstone Group LP’s advisory services unit.

“Housing is bottoming, gasoline is down from the beginning of the year, 90 percent of the people in the country have jobs,” Wien said in an interview this morning on Bloomberg Television’s “In the Loop” show. “The European situation is getting better, not resolved, but getting better. The fiscal cliff will be deferred,” he said, referring to higher taxes and spending cuts that will take effect at year-end unless Congress acts. “There will be more good news than bad.”

European Markets

The Stoxx 600 slipped from its highest level since March 19. Mining companies led losses after a director at Vale SA, the world’s biggest iron-ore producer, said that China’s “golden years” are behind it. Eurasian Natural Resources Corp. slid 8.5 percent as the Kazakh metal producer posted a 60 percent slump in first-half profit. Stock markets in Italy, Greece, Austria and Luxembourg were closed for public holidays today.

Standard Chartered gained 4.1 percent after it agreed to pay $340 million to settle a probe by New York regulators into allegations it helped funnel Iranian money into the U.S. The regulator had threatened to strip the lender of its license to operate in the state.

The MSCI Emerging Markets Index fell 0.3 percent. The Shanghai Composite Index slid 1.1 percent and Russia’s Micex Index lost 0.8 percent. Markets in India, South Korea and Poland were closed for holidays.

Of the 24 commodities tracked by the S&P GSCI index, 12 advanced.

Oil for September delivery rose 1 percent to settle at $94.33 a barrel on the New York Mercantile Exchange, a three-month high, after the U.S. Energy Department reported a decline in stockpiles and Saudi Arabia called on its citizens to leave Lebanon, adding to tensions in the Middle East.

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