Treasuries Rise as U.S. Stocks Drop; Yen Climbs on Yuan

Treasuries rose and the Standard & Poor’s 500 Index retreated after touching an intraday record yesterday on signs U.S. consumer confidence is flagging. The yen gained amid concern a weaker Chinese yuan will hurt growth while natural gas led commodities lower.

Yields on 10-year Treasuries dropped four basis points to 2.70 percent by 4:30 p.m. in New York. The S&P 500 lost 0.1 percent to 1,845.12, after fluctuating near its record closing level for most of the day. Japan’s currency climbed versus 15 of 16 major peers as the managed yuan slipped the most since November 2010 and the Shanghai Composite Index slid 2 percent. Ukraine’s hryvnia tumbled to a record as lawmakers delayed a vote on selecting a government. Natural gas sank 6.4 percent.

The Conference Board’s U.S. consumer confidence index fell more than analysts predicted in February, data today showed, while other reports indicated home prices rose at a slower pace through December and manufacturing in the Richmond area unexpectedly shrank. China’s yuan retreated for a sixth day versus the dollar, ending the session weaker than a reference rate set by the central bank to manage the currency for the first time since September 2012.

“Data of late have been on the weaker end of expectations,” said Dan Mulholland, head of Treasury trading at BNY Mellon Capital Markets in New York. “Equities are at the all-time highs -- maybe people are taking chips off the table and putting some cash in Treasuries.”

Treasury Auction

Ten-year Treasury yields fell as the disappointing U.S. data fueled demand for the safety of government debt. An auction of $32 billion in two-year notes, the first of four bond sales this week, drew a yield of 0.340 percent, the lowest level since November. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.6, the highest since December.

The S&P/Case-Shiller index of property values in 20 U.S. cities rose 13.4 percent in December from December 2012 after increasing 13.7 percent in the year ended in November. It was the first deceleration since June.

The consumer confidence gauge fell to 78.1 in February from 79.4 the prior month. The median forecast in a survey of economists called for a reading of 80. The Richmond Federal Reserve’s manufacturing survey slipped to minus 6 this month. Economists called for a reading of 80.

Fed Stimulus

Fed Chair Janet Yellen said this month that the economy has strengthened enough to withstand cuts to monetary stimulus, adding that only a notable change to the outlook would prompt the central bank to slow the pace of tapering. Three rounds of stimulus have helped push the S&P 500 up 173 percent from a 12-year low reached in 2009. The gauge has gained 3.4 percent this month.

The S&P 500 rose as much as 1.2 percent yesterday to a record 1,858.71 before ending the session up 0.6 percent at 1,847.61, below a record close of 1,848.38 set Jan. 15. The index slumped 5.8 percent from that date through Feb. 3 as investor concern over continued reductions in the Fed’s monthly asset purchases fueled a rout in emerging markets.

“The big thing on everybody’s mind is that all-time high” in the S&P 500, Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research in Cincinnati, said by phone. “We’re kind of teetering with the new all-time high. We saw a little trouble maintaining the high yesterday.”

Yesterday, 68 percent of S&P 500 member companies traded above their average price over the past 50 days, according to data compiled by Bloomberg. More than 70 percent traded above their 50-day moving averages at the last record reached Jan. 15 and almost 80 percent were higher than the threshold when the S&P 500 closed at an all-time high at the end of the year, according to data compiled by Bloomberg.

Macy’s Jumps

Financial, industrial and technology companies led declines in seven of the 10 main industry groups in the S&P 500 today. Office Depot Inc. slumped 8.8 percent after reporting an unexpected loss. Tesla Motors Inc. increased 14 percent as Morgan Stanley more than doubled its projected price for the stock.

Home Depot Inc. rallied 4 percent for the biggest advance in the Dow Jones Industrial Average after the largest U.S. home-improvement chain posted profit that topped analysts’ projections. Macy’s Inc. climbed 6 percent as the department-store company beat earnings estimates after recording a smaller-than-projected charge for a cost-cutting program.

European Stocks

The Stoxx Europe 600 Index gained 0.1 percent to a six-year high, recovering from an earlier 0.5 percent drop. Vivendi SA, the French company preparing a spinoff of its phone business SFR, slipped 1.1 percent after sales trailed estimates. Fresenius Medical Care AG, the world’s biggest provider of kidney dialysis, lost 5.7 percent after giving a 2014 profit forecast that missed projections. Parent Fresenius SE declined 4.2 percent.

Jyske Bank A/S jumped 11 percent after Denmark’s second-largest listed lender agreed to buy BRFkredit A/S for about 7.4 billion kroner ($1.36 billion). St. James’s Place Plc rallied 5.1 percent after the British wealth manager reported an increase in net inflows and funds under management.

The Hang Seng China Enterprises Index fell 0.6 percent. The weaker yuan boosts the cost of overseas borrowing by Chinese companies at the same time as lenders face pressure to curb some riskier forms of funding at home. The yuan slipped to 6.1266 per dollar in Shanghai, after reaching a six-month low of 6.1310, according to China Foreign Exchange Trade System prices. The currency can diverge by a maximum 1 percent from the reference rate, which was set at 6.1184 today.

‘Financial Risks’

The People’s Bank of China plans to expand the yuan’s trading band in an “orderly” manner this year, it said last week.

“There are increasing financial risks out of China,” said Witold Bahrke, who helps oversee $55 billion as a senior strategist at PFA Asset Management in Copenhagen. “This is increasing the deflation risks for the global economy from a devaluation strategy. We in fact do not know for sure what intentions the Chinese might have exactly, and that uncertainty is reflected in today’s weakness.”

The hryvnia slid 6 percent to 9.73 per dollar, extending its slump this year to 18 percent. Yields on the nation’s April 2023 dollar-denominated bonds rose 51 basis points to 9.76 percent. The country will select a national unity government Feb. 27, delaying a vote in parliament that had been planned for today, interim leader Oleksandr Turchynov said.

Commodities Slump

South Africa’s rand strengthened against all 16 major currencies tracked by Bloomberg, gaining 0.6 percent against the dollar after a report showed the country’s economy expanded more than forecast in the fourth quarter.

The yen strengthened 0.3 percent to 102.19 per dollar and climbed 0.3 percent to 140.43 per euro. Gold -- which, like the yen, is regarded by some investors as a safe haven -- gained a third day, adding 0.3 percent to $1,340.96 an ounce, the highest close since Oct. 30.

The drop in U.S. natural gas futures capped the biggest two-day drop in more than seven years, amid speculation warmer weather will cut demand for the heating fuel. Forecasters including MDA Weather Services said frigid weather in the U.S. Midwest and East through next week will ease starting March 7.

West Texas Intermediate crude oil declined 1 percent, the most in three weeks, to $101.83 a barrel in New York. U.S. crude inventories probably increased for a sixth week to 363.6 million barrels, according to a Bloomberg News survey of analysts before Energy Information Administration data due tomorrow.

Copper futures fell 0.4 percent, dropping for a fifth straight day. China is the biggest buyer of the metal.

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