Treasuries slid, sending 10-year yields to the highest since May, and U.S. stocks retreated after Federal Reserve policy makers said they will probably end their bond-purchase program this year. The dollar extended gains after the Fed minutes and commodities declined.
Ten-year Treasury note yields increased seven basis points to 1.90 percent at 4:10 p.m. in New York. The Standard & Poor’s 500 Index slipped 0.2 percent to 1,459.37 after earlier climbing within one point of its highest closing level in five years. The index surged 2.5 percent yesterday, the most in a year, after lawmakers reached an agreement on tax rates. The U.S. currency rose versus 13 of 16 major peers and the Dollar Index jumped to the highest since November, while industrial metals led commodities lower. Gold lost 1.4 percent in extended trading.
Fed policy makers said they will probably end their $85 billion monthly bond purchases sometime in 2013 with members divided between a mid- or end-of- year finish, signaling a divide among central bankers on how long the quantitative easing should last. Earlier gains in stocks came after a private report showed better-than-forecast growth in employment and retailers posted improving sales.
“There’s a pretty active debate” at the Fed, Christopher Orndorff, who helps oversee $450 billion as senior money manager at Western Asset Management Co. in Pasadena, California, said in a telephone interview. “They’re airing the disagreements on the board and preparing the markets for what will eventually happen. But the Fed has been pretty clear unemployment has to come down lower and the economy has to grow faster before QE ends.”
Four years after cutting the main interest rate to near zero, policy makers are expanding their third round of so-called QE to boost economic growth and cut the jobless rate. In prior rounds of bond purchases, the central bank bought $2.3 trillion in securities.
The yield on the benchmark 10-year Treasury security rose the most since October yesterday as lawmakers approved a budget averting income-tax increases for more than 99 percent of households, breaking an impasse about how to head off the so-called fiscal cliff. Lawmakers must next tackle the U.S. debt ceiling, which reached its $16.4 trillion limit on Dec. 31.
Among U.S. stocks, UnitedHealth Group Inc. lost 4.7 percent to lead declines in the Dow Jones Industrial Average after Deutsche Bank AG removed its buy rating on the stock. Mellanox Technologies Ltd. sank 17 percent after the Israeli developer of data-management technology reduced its revenue guidance on weaker demand.
TJX Cos. rose 3.3 percent and Ross Stores Inc. climbed 8 percent, while Target Corp. and Nordstrom Inc. also helped lead gain in retailers after reporting December sales. General Motors Co. and Ford Motor Co. rallied more than 1.9 percent after reporting December results that topped analysts’ estimates.
A report today from ADP Research Institute indicated the labor market finished 2012 with momentum, with a 215,000 increase in jobs that was the largest since February and more than economists estimated. The data fueled optimism before tomorrow’s government payrolls report as investor focus returned to economic prospects after the budget agreement was sealed. Separate government data showed applications for jobless benefits increased by 10,000 to 372,000 last week.
The Labor Department releases non-farm payrolls for December tomorrow. Economists predict an addition of 153,000 workers last month after a 146,000 gain in November. The unemployment rate held at 7.7 percent, the lowest since December 2008, according to economists’ estimates.
BlackRock Inc.’s Laurence D. Fink, who heads the world’s largest asset manager, lowered his expectations for stocks in the first quarter after saying yesterday he’s disappointed by the bill U.S. lawmakers passed and thinks it doesn’t address the deficit strongly enough. The package won’t cut deficits enough to avoid a sovereign-rating downgrade, Moody’s Investors Service said.
Predicting the consequences of a rating change by S&P or Moody’s may be little better than flipping a coin, with yields moving in the opposite direction than suggested 47 percent of the time, according to data compiled by Bloomberg in June on 314 upgrades, downgrades and outlook changes going back to 1974. Yields were measured after a month relative to U.S. Treasury debt, the global benchmark.
Treasuries have gained about 6.1 percent since S&P cut the grade of the U.S. one step to AA+ in August 2011, according to Bank of America Merrill Lynch indexes, with 10-year yields tumbling to an all-time low of 1.379 percent on July 25 last year.
Three stocks fell for every two that rose in the Euro Stoxx 50, which slipped 0.4 percent. The broader Stoxx Europe 600 Index gained 0.5 percent, closing at the highest level since February 2011, as Swiss shares rallied. The Swiss Market Index jumped 2.9 percent, with Cie. Financiere Richemont SA and Credit Suisse Group AG surging more than 5 percent, as the resumption of trading following the New Year holiday gave investors their first chance to react to the U.S. budget deal.
German 10-year bund yields increased four basis points to 1.48 percent, the highest since October. German unemployment increased less than economists forecast in December, the Nuremberg-based Federal Labor Agency said today.
The yen appreciated 1.1 percent against the euro as it strenghtened against 15 of 16 major peers. The dollar advanced 1 percent to $1.3053 per euro, the strongest level since Dec. 12.
The MSCI Emerging Markets Index advanced 0.3 percent for a ninth straight gain, the longest rally since October 2011. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong rose 0.8 percent after a report showed China’s services industries expanded at the fastest pace in four months.