Treasuries Fall on Tax-Cut Extension; Stock Rally Fades Amid Insider Probe
Treasuries slid, pushing the two-year yield up the most since March, after President Barack Obama agreed to extend tax cuts and a three-year note sale drew the lowest demand since February. U.S stocks erased an early rally after a report that an insider-trading probe widened.
The two-year note yield gained 11 basis points to 0.53 percent as of 4 p.m. in New York. The S&P 500 rose less than 0.1 percent to 1,223.75 after rallying 1 percent to the highest level since September 2008 earlier. Copper surged to a 31-month high in New York and an all-time high in London, while gold slipped from an intraday record and oil decreased after touching a 26-month high. The Dollar Index climbed for a second day.
The rout in Treasuries sent the 10-year yield to a five- month high of 3.13 percent amid concern the extension of the tax cuts will widen the budget deficit. The gain in stocks fizzled as Reuters reported federal authorities have “ramped up” a probe of insider trading, while optimism over the tax-cut extension waned as Obama said he’d push to overhaul the code in two years and Senate Majority Leader Harry Reid said Democrats have concerns about the agreement.
“It all happened at the same time, taking the market off its highs,” said Michael Nasto, senior trader at U.S. Global Investors Inc., which manages about $2.5 billion in San Antonio. “Investors got a little spooked during Obama’s press conference,” he said. “Then, we had news that the SEC may widen the insider trading probe. That took some wind out of stocks even after all the optimism with the tax cuts.”
The existing three-year Treasury note yield rose 13 basis points to 0.82 percent. The U.S. sold $32 billion of three-year securities, the first of three note and bond sales totaling $66 billion this week.
The cost of protecting U.S. corporate bonds from default fell for a fifth day, sinking to the lowest level in a month. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decreased 0.5 basis point to a mid-price of 90.21 basis points, according to index administrator Markit Group Ltd.
U.S. government debt dropped after Obama said he would accept lower rates on high earners’ income, dividends, capital gains and multimillion-dollar estates for the next two years to break a stalemate over extending the Bush administration’s tax cuts for middle-class taxpayers before Congress adjourns. The current tax rates, enacted in 2001 and 2003, are set to increase Dec. 31.
‘Get Out of the Way’
“It’s not just the tax cuts themselves, but the sentiment in watching Washington move forward when before it was seen as just not doing much,” said Anthony Crescenzi, a bond strategist at Newport Beach, California-based Pacific Investment Management Co., the world’s biggest bond fund. “They are more confident that the government is starting to get out of the way.”
3M Co., JPMorgan Chase & Co. and Hewlett-Packard Co. slipped more than 1.5 percent to lead losses in the Dow Jones Industrial Average, which erased an 89-point rally to close down 3.03 points, or less than 0.1 percent, at 11,359.16.
The declines came as Reuters reported that federal authorities have sent more than a dozen subpoenas to hedge funds and investment firms. The news service cited people familiar with the inquiry and didn’t name any of the firms receiving subpoenas.
Citigroup Inc. rallied 3.8 percent as the U.S. sold its remaining stock in the bank for $10.5 billion, bringing the bank a step closer to independence from the government following a $45 billion bailout in 2008.
Targa Resources Corp., a natural-gas pipeline company controlled by Warburg Pincus LLC, rallied 12 percent after selling $360 million of shares in an initial public offering. Targa Resources sold 16.4 million shares for $22 apiece yesterday, according to a regulatory filing, after increasing the size of the offering by 25 percent.
About four companies rose for every one that fell in the Europe Stoxx 600 Index, which climbed 0.9 percent as all 19 industry groups advanced. The MSCI Asia Pacific Index gained less than 0.1 percent. BHP Billiton Ltd. helped lead mining stocks higher, rising 1.7 percent in London. Unilever climbed 3.7 percent in Amsterdam after Morgan Stanley recommended shares of the world’s second-largest consumer-goods maker.
The MSCI Emerging Markets Index advanced for a fifth day, rising 0.4 percent to the highest level in three weeks.
European Bond Yields
The German 10-year bund yield rose 10 basis points to 2.95 percent. The extra yield, or spread, investors demand to hold Irish 10-year bonds instead of bunds fell 24 basis points to 508, or 5.08 percentage points, according to data compiled by Bloomberg.
Irish Finance Minister Brian Lenihan cut spending and raised taxes by 6 billion euros ($8 billion) to deal with what he called the “worst crisis in our history” as the government seeks to seal an international aid package. Lawmakers were voting on the measures, which include cuts in child payments, tax credits and some unemployment benefits, in parliament in Dublin later today.
Spreads between benchmark 10-year German bunds and Portuguese, Spanish and Italian debt also narrowed.
The dollar strengthened against 13 of its 16 most-traded counterparts, rising 0.3 percent to $1.3263 per euro.
Copper rose to a record in London and a 31-month high in New York. The metal for March delivery added 1 percent to $4.0495 a pound on the Comex in New York after reaching $4.1315, the highest level since May 5, 2008, and climbed as high as $9,044 a metric ton on in London.
Gold turned lower after climbing to records in New York and London. Gold for February delivery slipped 0.5 percent to $1,409 an ounce after earlier touching $1,432.50. Oil retreated 0.8 percent to $88.69 a barrel high after failing to maintain a hold above technical resistance at $90, spurring sales by investors.
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