Treasury yields jumped to the highest level since 2011 amid swelling speculation the Federal Reserve will trim its bond purchases next month. Emerging markets led losses in stocks and industrial metals slid, while U.S. shares were poised for their first four-day slump of 2013.
Ten-year Treasury yields climbed six basis points to 2.88 percent and yielded 40 basis points more than bonds in an index of debt from the Group of Seven nations, the highest since May 2010. The MSCI Emerging Markets Index sank 1.4 percent as India’s rupee dropped to a record against the dollar. The Standard & Poor’s 500 declined 0.6 percent to 1,646.06, the lowest closing level since July 8. Italy and Greece led Europe government bonds lower. Corn and soybeans surged more than 3 percent, while copper slid 1.3 percent.
U.S. central bankers gather this week in Jackson Hole, Wyoming, to discuss monetary policy and minutes of the Federal Open Market Committee’s July meeting will be released on Aug. 21. Slowing economic growth in countries from India to Indonesia combined with speculation the Fed will taper its stimulus program is driving investors to pull funds from emerging markets and sending Treasuries lower.
“Every little uptick is met with sellers,” said Justin Lederer, an interest-rate strategist at Cantor Fitzgerald LP in New York, one of 21 primary dealers that trade with the Fed. “There’s more of a feeling tapering is going to happen in September.”
Officials will probably begin to scale back their $85 billion in monthly asset purchases in their program of quantitative easing next month, according to 65 percent of economists surveyed by Bloomberg from Aug. 9-13. The first step may be reducing purchases by $10 billion a month, the median estimate of analysts shows.
Yields on 10-year Treasury notes will rise above 3 percent as the Fed scales back its purchases, according to Rick Rieder, chief investment officer for fundamental fixed-income at BlackRock Inc.
The Fed’s quantitative easing “is too big,” Rieder said in an interview with Tom Keene and Sara Eisen on Bloomberg Television. “You have got to taper down QE. It has created this tremendous distortion in interest rates. We think fair value on the 10-year is close to 3-to-3.25 percent. You are getting very close to there.”
The yield on 10-year Treasury note extended last week’s 25 basis-point increase. Italy’s 10-year bond yield climbed 10 basis points to 4.28 percent and rates on Spanish, Swedish, Dutch and U.K. debt of similar maturity increased more than four basis points.
“The market’s going to be watching the FOMC minutes this week to see if there’s any more indication in regards to potential of tapering in September,” Martin Lakos, a Sydney-based director at Macquarie Private Wealth, said on Bloomberg Television’s “First Up” with Susan Li. “There are still some concerns that a big move in QE will be disruptive.”
The S&P 500 decreased 2.1 last week, its biggest drop since June, and is down almost 4 percent from its last record on Aug. 2. The Dow Jones Industrial Average sank 2.2 percent last week, the biggest drop in 14 months.
Gauges of energy and financial companies lost more than 1.3 percent today to lead declines in nine of the 10 main industry groups in the S&P 500.
Zillow Inc. tumbled 7.1 percent as it agreed to acquire New York City real-estate website StreetEasy. JPMorgan Chase & Co. slipped 2.7 percent to lead losses in the Dow after the New York Times reported that the U.S. Securities and Exchange Commission’s anti-bribery unit is investigating whether the bank hired the children of Chinese officials to help its business in that nation. Apache Corp. tumbled 4.6 percent, pacing losses in energy stocks.
Intel gained 1.7 percent after Piper Jaffray Cos. raised its rating on the shares. Edwards Group Ltd. surged 18 percent after Atlas Copco AB agreed to buy the company for $1.2 billion. Dollar General Corp. gained 3.1 percent after JPMorgan raised its rating on the shares.
The Stoxx 600 retreated after climbing for three straight weeks, as three shares fell for every two that advanced. Holcim Ltd. dropped 4.4 percent as UBS AG downgraded its recommendation on the cement maker. Lafarge SA, a competing cement producer, slid 4.2 percent.
The euro gained 0.1 percent to $1.3337 while the dollar was little changed against the yen. The Bloomberg U.S. Dollar Index, a gauge of the currency against 10 major peers, added 0.1 percent.
The MSCI Emerging Markets Index lost the most since July 3. Investors are favoring U.S. stocks over emerging markets by the most ever as fund flows and volatility measures show institutions are increasingly seeking the relative safety of American equities.
Almost $95 billion was poured into exchange-traded funds of American shares this year, while developing-nation ETFs saw withdrawals of $8.4 billion, according to data compiled by Bloomberg. The S&P 500 trades at 16 times profit, 70 percent more than the MSCI Emerging Markets Index. A measure of historical price swings indicates the U.S. market is the calmest in more than six years compared with shares from China, Brazil, India and Russia.
Cash is draining from emerging-market ETFs and flowing into U.S. stock funds at the fastest rate on record as bulls say an unprecedented third year of higher earnings growth will support the S&P 500 even as the Federal Reserve begins to remove stimulus. Developing-nation investors say the ETFs will lure more cash after equity valuations reached a four-year low.
India’s rupee fell to an all-time low of 63.23 per dollar and the Sensex index dropped 1.6 percent. Foreigners sold a net $3 billion of Indian stocks and bonds in July amid the slowest growth in a decade in Asia’s third-largest economy, according to data compiled by Bloomberg.
The Jakarta Composite Index sank 5.6 percent, the most since October 2011 and the biggest drop among equity indexes tracked by Bloomberg worldwide, after Indonesia’s current-account deficit widened to a record. The rupiah fell to as low as 10,608 per dollar, the weakest level since 2009, prices from local banks compiled by Bloomberg show.
Foreign institutional investors sold a net $85.4 million of Indonesian stocks on Friday, the biggest outflow since July 8, exchange data compiled by Bloomberg show. The economy grew less than 6 percent last quarter for the first time since 2010.
“Indonesia has seen a gradual but persistent bout of bad news, with slowing growth, quickening inflation and then the current-account deficit,” said Leo Rinaldy, a Jakarta-based economist at PT Mandiri Sekuritas, a unit of the nation’s largest lender.
Thailand’s SET Index dropped 3.3 percent, the most in two months, after a report showed the economy unexpectedly shrank in the second quarter, pushing the country into a recession, and the government cut its growth forecast. The baht weakened 0.4 percent, the biggest decline in two weeks.
Soybeans climbed 3.5 percent on speculation dry U.S. weather may curb yields. Corn jumped 4.8 percent. More than 120 analysts, traders, farmers and processors will inspect farms in Ohio, Indiana, Illinois, Iowa, Nebraska, South Dakota and Minnesota over the next four days as part of the 21st annual Pro Farmer crop tour.
West Texas Intermediate oil was down 0.3 percent at $107.10 a barrel, halting a six-day rally, as the threat to production from a storm in the Gulf of Mexico dissipated. Brent crude slipped 0.5 percent at $109.88 a barrel. Goldman Sachs Group Inc. raised its price forecasts for Brent, predicting an increase to about $115 in the “very near term” amid supply disruptions in Libya and Iraq.
U.S. natural gas futures for September rose to their highest level of the month, climbing as much as 4 percent to $3.50 per million British thermal units on the New York Mercantile Exchange, on speculation that late August heat will stoke demand for power-plant fuel.