Treasury Bill Rates Jump, U.S. Stocks Fall as Talks Stall

Treasury bill rates surged to the highest level since the securities were sold in April and U.S. stocks snapped a four-day rally as lawmakers failed to reach an agreement to extend the government’s borrowing limit less than two days before the deadline. Oil fell and gold erased losses.

The Standard & Poor’s 500 Index dropped 0.7 percent to 1,698.06 at 4 p.m. in New York after jumping 3.3 percent in the previous four sessions. Rates on Treasury bills due Oct. 24 jumped as the U.S. attracted the least demand at weekly bill auctions since 2009. The Stoxx Europe 600 Index advanced 0.8 percent, rising for a fourth day in the longest winning streak in two months. Oil slid 1.2 percent while gold gained, rebounding from a three-month low.

Senate talks aimed at ending the government shutdown and preventing a default are on hold and haven’t broken down while the House considers its competing plan, said the chamber’s top leaders. After the close of the market, Fitch Ratings placed the U.S.’s AAA ratings on watch for a possible downgrade, citing the lack of a deal on the federal debt.

“The markets are trading on every news clip and the uncertainty is increasing, which is having an unstabilizing effect in the markets,” Chad Morganlander, a Florham Park, New Jersey-based portfolio manager at Stifel Nicolaus & Co., which oversees about $130 billion of assets, said by phone. “Everyone is somewhat over-caffeinated and a bit jittery in part because of politicians not doing their job.”

The S&P 500 advanced 3.3 percent in the last four trading sessions, the biggest four-day rally since January, on optimism that lawmakers were close to a deal. The index closed yesterday within 16 points of its Sept. 18 record of 1,725.52.

Fiscal Standoff

The House will vote as soon as tonight on a bill that would prevent U.S. borrowing authority from lapsing and end a 15-day government shutdown, following through on a maneuver that put Senate talks on hold. The revised House plan would extend government funding through Dec. 15, rather than Jan. 15, 2014, in the Senate plan, said Representative Devin Nunes of California, who had been meeting with leaders.

While the House moves, Senate talks have been put on hold. The federal government shutdown is in its 15th day and U.S. borrowing authority will lapse Oct. 17.

The U.S. 10-year Treasury yield rose four basis points to 2.73 percent after reaching 2.74 percent, the highest level since Sept. 23.

Treasury Bills

The $35 billion in three-month bills were sold at the lowest bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, since July 2009. The ratio for $30 billion six-month bills was the lowest since October 2009. The rate on bills due Oct. 24 rose 20 basis points to 0.46 percent after touching 0.51 percent, the highest since the bills were sold. The rate was negative as recently as Sept. 27.

“The tension and political risk is driving up bill yields and people and the nervousness has shown itself in the short end,” said Aaron Kohli, an interest-rate strategist at BNP Paribas SA in New York, one of 21 primary dealers that trade with the Fed.

All 10 group in the S&P 500 fell, with utility companies dropping 1.4 percent. Home Depot Inc. retreated 1.5 percent and Procter & Gamble Co. sank 1.5 percent for the biggest slides in the Dow Jones Industrial Average. FedEx Corp. jumped 4.1 percent after the world’s largest cargo airline operator announced a share repurchase program.

Diverted Attention

The fiscal showdown in Washington has diverted investor attention from economic data and corporate earnings. The Federal Reserve Bank of New York’s general economic index fell to 1.5, a five-month low, from 6.3 in September. Positive readings signal expansion in New York, northern New Jersey and southern Connecticut.

Citigroup Inc., Johnson & Johnson and Coca-Cola Co. are among the companies in the S&P 500 that released third-quarter results this morning. Citigroup tumbled 1.5 percent as the third-biggest U.S. bank, reported a $3.23 billion profit that missed analysts’ estimates as bond trading slumped 26 percent and U.S. mortgage revenue declined.

“If we can get through this political mess, then we can really start to focus on more fundamental things like earnings,” Thomas Garcia, head of equity trading at Santa Fe, New Mexico-based Thornburg Investment Management Inc., said in a phone interview. His firm manages more than $90 billion. “The numbers that we are going to start to get for the last month, you might see a little bit of a slowdown from the government shutdown.”

Earnings Season

Profits for companies in the S&P 500 probably increased 1.4 percent during the three months while sales rose 2 percent, according to analysts’ estimates compiled by Bloomberg.

The Stoxx 600 climbed to a three-week high as 18 of 19 industries advanced. Rio Tinto Group rose 4.3 percent to lead mining companies higher after reporting record third-quarter iron-ore and power-station coal output.

Burberry Group Plc lost 7.6 percent after saying Chief Executive Officer Angela Ahrendts will depart for Apple Inc. Schindler Holding AG tumbled 5.9 percent after the Swiss elevator maker cut its profit forecast.

The S&P GSCI Index of commodities lost 0.5 percent as 16 of 24 commodities declined. West Texas Intermediate crude dropped 1.2 percent to $101.21 a barrel as Senate talks were put on hold. Crude futures also fell as world powers held talks with Iran on its nuclear program. Gold for immediately delivery rose 0.7 percent to $1,281.80 an ounce. Earlier, the price fell as much as 1.6 percent to $1,251.85, the lowest since July 10.

The dollar strengthened versus the euro for the first time in three days, appreciating 0.3 percent to $1.317 per euro. It reached $1.3480, the strongest level since Sept. 30, before the U.S. government shutdown. The dollar sank as much as 0.4 percent to 98.17 yen before trading at 98.32 yen, down 0.3 percent. Earlier it touched 98.70 yen, the strongest level since Oct. 1.

Australia Dollar

Australia’s dollar gained as the central bank said in minutes from its Oct. 1 meeting, when it held borrowing costs at a record-low 2.5 percent, that it should “neither close off the possibility of reducing rates further nor signal an imminent intention to reduce them.”

The Aussie climbed as high as 95.48 U.S. cents, the strongest level since June 19.

The MSCI Emerging Markets Index climbed to a four-month high, adding 0.7 percent. Benchmark gauges in Russia, South Africa, South Korea and Taiwan jumped at least 1 percent. The Malaysian ringgit and South Korean won led currencies higher.

The Shanghai Composite Index fell for the first time in three days, while the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong rose 0.9 percent as trading resumed after yesterday’s holiday. The yuan climbed to a 20-year high after the nation’s foreign-exchange reserves advanced to a record $3.66 trillion as of Sept. 30 in a sign of capital inflows.