Bonds Rise as Europe Rates Slide; S&P 500 Little Changed
Treasuries rose, pushing the 30-year bond yield to a 15-month low, as a collapse of rates in Europe sent investors reaching for higher yields. The Standard & Poor’s 500 Index was little changed after closing above 2,000 for the first time, while the dollar weakened.
The yield on 30-year Treasuries slipped 6 basis points to 3.11 percent as of 4 p.m. in New York, after an auction of $35 billion in five-year notes. Rates on 10-year (GFRN10) bonds from Spain to Germany dropped to lows on speculation the European Central Bank is prepared to expand stimulus. The S&P 500 was at 2,000.12 after reaching a record yesterday, while the Stoxx Europe 600 Index added 0.1 percent. The dollar weakened against all 16 major peers. The MSCI Emerging Markets Index climbed 0.7 percent to the highest in three years.
Rallies from Brazil to Japan and the S&P 500’s first trip above 2,000 has sent the value of global equities to a record $66 trillion. Data today showed French factory confidence fell to the lowest in 13 months and a measure of German consumer sentiment slid more than forecast, fueling bets European Central Bank President Mario Draghi will introduce quantitative easing.
“It’s pretty straightforward: more and more investors are expecting something big to be announced at the beginning of September,” said Felix Herrmann, an analyst at DZ Bank AG in Frankfurt. “At the moment they are just continuing the hunt for yield.”
Weaker data in Europe is spurring speculation that Draghi will consider quantitative easing, which could involve broad-based asset purchases, and would signal benchmark interest rates are on hold for an extended period. Policy makers are scheduled to hold their next rate-setting meeting on Sept. 4.
Federal Reserve Chair Janet Yellen, who is already paring back unprecedented stimulus measures, said Aug. 22 that while slack remains in the labor market, the timeline for interest-rate increases could be brought forward under the right circumstances.
Spanish 10-year (GSPG10YR) yields fell three basis points to 2.14 percent, after reaching 2.083 percent, the lowest since Bloomberg began tracking the data in 1993. The rate on Italy’s (GBTPGR10) debt declined to as low as 2.343 percent, while that on French bonds slid to 1.228 percent, both records. German yields dropped to less than 0.9 percent for the first time. Rates on Austrian, Belgian, Dutch, Finnish, Irish debt also fell to lows.
The extra yield on Treasuries over their Group-of-Seven counterparts was 79 basis points at the close of trading yesterday, the widest since June 2007.
An auction of $35 billion in five-year notes drew the highest demand in more than a year from an investor class including foreign central banks as the debt yielded almost the most over its German equivalent in nine years. A two-year auction yesterday drew close to the highest yield in three years amid prospects the Fed may raise interest rates from zero sooner than policy makers estimate.
“The rally is being led by what’s going on in Europe and the bond markets there,” said Charles Comiskey, New York-based head of Treasury trading at Bank of Nova Scotia in New York, one of 22 primary dealers that are obligated to bid in U.S. debt auctions.
The MSCI All-Country World Index added 0.1 percent today. Optimism that central banks will support economic growth has sent the gauge up 3.9 percent from its low this month. Shares worldwide added more than $2.2 trillion in value since Aug. 7, according to data compiled by Bloomberg.
The S&P 500 climbed 0.6 percent over the previous two days, closing at 2,000.02 yesterday, after data added to signs the economy is strengthening. U.S. durable-goods orders jumped by the most on record last month and consumer confidence climbed in August to the highest level in almost seven years.
Tiffany & Co. added 1 percent as it raised its full-year forecast after higher prices boosted quarterly revenue. Smith & Wesson Holding Corp. tumbled 14 percent after the gunmaker cut its full-year sales and profit forecast amid declining demand.
The Stoxx 600 added 0.1 percent, extending gains to a third day for a total increase of 2 percent. The gauge closed at the highest level in more than a month and is 1.8 percent below a six-year high reached in June.
Deutsche Lufthansa AG rose 2.2 percent, and Ryanair Holdings Plc climbed 3.4 percent after the discount airline said it will start a service for business travelers. Telecom Italia SpA advanced 3.2 percent after Oi SA said it is reviewing options for buying a stake in Tim Participacoes SA. Portugal Telecom SA, which is merging with Oi SA, gained 6.3 percent.
The MSCI gauge of stocks for developing nations climbed for a fourth day. Russia’s Micex Index added 0.3 percent while the ruble was little changed. Ukraine’s hryvnia lost 0.3 percent. Fighting in eastern Ukraine between government forces and pro-Russian rebels raged on after inconclusive talks between the Russian and Ukrainian presidents on ending the conflict.
“Russia, for its part, will do everything for this peace process,” President Vladimir Putin said after talks with his Ukrainian counterpart, Petro Poroshenko, in Minsk, Belarus. Poroshenko said on Twitter that Russia, Belarus and Kazakhstan backed a Ukrainian peace strategy to stem fighting between the army and pro-Russian insurgents.
The U.S. currency fell 0.2 percent to $1.3196 per euro after touching $1.3153, the strongest level since Sept. 6. The dollar declined 0.2 percent to 103.90 yen.
Gasoline futures fell 0.6 percent as a government report showed U.S. output rose before the Labor Day holiday. West Texas Intermediate oil was little changed, erasing an earlier gain, after a report indicated U.S. crude stockpiles dropped less than expected.
Gold fell 0.1 percent at $1,283.40 an ounce.