Treasury Rates Climb as Gold to S&P 500 Retreat After Fed

Yields on 10-year Treasury notes climbed to a three-month high, gold sank and the Standard & Poor’s 500 Index fell from a record following the Federal Reserve’s decision to reduce bond purchases. European stocks rose, catching up with yesterday’s U.S. rally.

Ten-year yields jumped four basis points to 2.93 percent by 4:44 p.m. in New York, while the S&P 500 lost 0.1 percent to 1,809.60. The Stoxx Europe 600 Index added 1.7 percent, the most in more than three months. Gold slid below $1,200 an ounce for the first time since June, reaching the lowest prices in euros and pounds since 2010. Oil rose to a two-month high. The U.S. dollar gained versus most major peers as the Bloomberg-JPMorgan Asia Dollar Index dropped to the lowest level since September.

The Fed Open Market Committee said yesterday it will lower monthly asset purchases to $75 billion from $85 billion, citing an improved outlook for the American jobs market. Applications for U.S. unemployment benefits unexpectedly rose last week to an almost nine-month high, indicating fluctuation in the filings that typically occurs around the year-end holidays. The Bank of Japan began a two-day policy meeting.

“You’ve got standard post-FOMC volatility,” said Jim Vogel, head of agency-debt research at FTN Financial in Memphis, Tennessee. “There were only so many trades you could do yesterday afternoon, so you were fighting with what other people were doing for their positions.”

U.S. Debt

A government auction of $29 billion in seven-year notes drew the highest yield since June 2011 at 2.385 percent. U.S. government securities due in 10 years or more yielded 1.18 percentage points more than non-U.S. sovereign debt, the most since June 2007, Bank of America Merrill Lynch data show. Rates on 10-year German bunds climbed three basis points, or 0.03 percentage point, to 1.87 percent.

“The path of least resistance is still higher in yields,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “Expectations are for the Fed to taper an additional $10 billion a meeting throughout 2014, and on that pace they should be done by year-end. We’re in the process of coming to grips with those expectations, and then the market will be back to being data-dependent.”

Data from the U.S. Labor Department today showed applications for jobless benefits rose last week to 379,000. The median forecast of 48 economists surveyed by Bloomberg called for a drop to 336,000. A separate report showed previously owned home sales declined for the third consecutive month in November to the lowest level of the year as rising mortgage rates and a limited supply of properties discouraged buyers.

Leading Indicators

The Conference Board’s index of U.S. leading economic indicators, a gauge of the outlook for the next three to six months, increased 0.8 percent in November, the New York-based group said. The median forecast of economists surveyed by Bloomberg called for an advance of 0.7 percent.

“It’s clear that the economy is doing a little bit better and at the same time inflation is still low,” Michael Strauss, chief investment strategist and chief economist at Commonfund Group in Wilton, Connecticut, said by phone. His firm oversees about $25 billion of assets. “That’s sort of like the best of the world to the Fed to begin the tapering process and they did.”

Three rounds of monetary stimulus have helped send the S&P 500 up more than 165 percent from a 12-year low reached in 2009. The equities benchmark has surged 27 percent this year, challenging 2003 for the biggest annual gain since 1997. The Fed’s balance sheet rose to a record $4.01 trillion in the past week because of the quantitative easing program, data today showed.

Record Highs

The S&P 500 rose 1.7 percent to an all-time high of 1,810.65 yesterday and the Dow Jones Industrial Average jumped 292.71 points to a record 16,167.97 as the Fed coupled its reduction in asset purchases with a pledge to keep interest rates close to zero. The Dow gained 0.1 percent today after earlier falling as much as 0.3 percent.

Among stocks moving in the U.S., utilities and health-care companies fell the most among the 10 main groups in the S&P 500, while raw-material, energy and technology companies had the largest gains. Chevron Corp. added 1.3 percent, the biggest advance on the Dow. U.S. Steel Corp. rallied 5.2 percent.

Rite Aid Corp. dropped 10 percent after cutting its earnings forecast. Facebook Inc. lost 0.9 percent after saying the company and some shareholders, including Chief Executive Officer Mark Zuckerberg, will sell 70 million shares. Oracle Corp. rose 5.8 percent after forecasting third-quarter sales and profit in line with analysts’ estimates.

Nike Earnings

Nike Inc., the world’s largest sporting-goods company, climbed as much as 1 percent in after-market trading after reporting second-quarter profit that topped analysts’ estimates.

European equities extended their two-day rally to 2.6 percent, the biggest gain since June, as all 19 industry groups in the Stoxx 600 rose. Saab AB surged 32 percent, the most in at least 15 years, after Brazil’s Defense Ministry agreed to buy 36 Gripen NG fighter jets for $4.5 billion. The Swedish company beat Boeing Co. to supply the airplanes through 2023. Boeing shares slipped 0.4 percent.

Mediaset SpA jumped 16 percent, the biggest gain on the Stoxx 600, after Deutsche Bank AG said that the Italian broadcaster’s plan to spin off its pay-TV business could increase the company’s profitability. A stand-alone company could attract an outside investor to share the cost of the rights to screen live soccer, the brokerage wrote.

Algeta ASA advanced 1.4 percent after Bayer AG agreed to buy the Norwegian drugmaker for 362 kroner a share, or 17.6 billion kroner ($2.9 billion). The German company made a preliminary offer of 336 kroner apiece in November.

Gold, Oil

Gold futures traded in New York dropped as much as 3.5 percent to $1,197.50 an ounce, the lowest intraday price since June 28. Gold for immediate delivery fell 2.3 percent. U.S. natural gas rallied 4.5 percent to $4.444 per million British thermal units after a government report showed a record drop in U.S. inventories.

West Texas Intermediate crude rose 1 percent to $98.77 a barrel, the highest settlement price since Oct. 21.

A Joint Review Panel said in a statement after markets closed that it had recommended the Canadian government approve Enbridge Inc.’s Northern Gateway project, subject to 209 conditions. The pipeline would be in the public interest, the panel found.

The Bloomberg U.S. Dollar Index added 0.2 percent, rising for a third straight day. The U.S. currency strengthened to the highest level against the euro in almost two weeks, adding 0.2 percent to $1.3661 per euro. The greenback dropped 0.1 percent to 104.24 yen after yesterday’s 1.6 percent surge.

Turkish Markets

Indonesia’s rupiah weakened as much as 0.6 percent to 12,236 per dollar, while the Bloomberg-JPMorgan Asia Dollar Index slipped 0.3 percent to 115.61.

Turkey’s benchmark stock index, the Borsa Istanbul 100 Index, slid 3.2 percent to extend its decline for the week to almost 7 percent. Prime Minister Recep Tayyip Erdogan’s government transferred police officers involved in a corruption probe, Yeni Safak newspaper reported, as opposition lawmakers accused the state of trying to bury the case.

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