Treasuries Gain With European Bonds as U.S. Stocks DropSusanne Walker and Lu Wang
Thirty-year Treasuries extended a fifth monthly gain, the longest rally since 2006, and European bonds climbed while U.S. stocks fell before a report that may show a contraction in the world’s largest economy.
Yields on 30-year bonds slipped seven basis points to an 11-month low of 3.29 percent at 4 p.m. in New York. Portugal, Spain and Italy led a rally in European 10-year bonds. The Standard & Poor’s 500 Index lost 0.1 percent after reaching a record yesterday. The Stoxx Europe 600 Index fell less than 0.1 percent after reaching a six-year high yesterday. New Zealand’s dollar slid 0.8 percent. Coffee and hogs led commodities lower.
A report tomorrow may show the U.S. economy shrank 0.5 percent last quarter, following a preliminary estimate of 0.1 percent annualized growth, according to economists surveyed by Bloomberg News. German unemployment unexpectedly rose for the first time in six months. Joblessness is one sign of what European Central Bank President Mario Draghi identified this week as an economic recovery that’s not strong enough to boost prices to a level policy makers are comfortable with, spurring speculation the ECB will act to boost inflation.
“People are focusing on the GDP number tomorrow,” John Traynor, chief investment officer of People’s United Bank Wealth Management in Bridgeport, Connecticut, said in a phone interview. His firm oversees $5.2 billion in assets. “There are two camps of investors. They seem to fall down on the side of ‘is the economy at a point where it reaches a self-sustaining path?’ I think you’re going to see better growth numbers in the latter half of this year.”
U.S. 10-year note yields slid eight basis points to 2.44 percent, the lowest since June on a closing basis. Yields on five-year notes declined five basis points to 1.48 percent as the securities held gains following a $35 billion auction at a yield of 1.51 percent.
German 10-year bunds rose for a second day with the yields falling five basis points to 1.34 percent. The yield on 10-year British gilts dropped nine basis points to 2.55 percent.
Spanish 10-year yields tumbled as much as nine basis points to a record low of of less than 2.80 percent. The yield on Italy’s 10-year bond fell seven basis points to 2.93 percent and touched an all-time low of less than 2.91 percent. Portugal’s rate sank 12 basis points to 3.55 percent.
“Expectations are building up for something big from the European Central Bank next week,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “We are chasing the lows in yield again. Until next week, yields will keep going lower.”
Among stocks moving in the U.S., Dollar General Corp. and Lowe’s Cos. slipped more than 2 percent after analysts cut their ratings on the shares. Toll Brothers Inc., the largest U.S. luxury-home builder, gained 2.1 percent after reporting that profit more than doubled. Twitter Inc. jumped 11 percent, the biggest increase in a month, after Nomura Holdings Inc. raised its recommendation on the stock.
The S&P 500 climbed for a fourth day yesterday after durable-goods orders unexpectedly rose and JBS SA offered to buy Hillshire Brands Co. for $6.4 billion. The equities gauge is trading at 16.2 times the projected earnings of its members, compared with a five-year average of 14.3 times, according to data compiled by Bloomberg News.
“We’ve had new highs, so the sentiment is one of caution,” Patrick Spencer, London-based head of equity sales at Robert W. Baird & Co., which oversees more than $100 billion, said by phone. “Some people are concerned that the vicious rotation out of momentum into value stocks signals the top of the equity market. I think it’s a healthy rotation. Markets will go higher.”
Investors have returned to smaller companies and technology stocks, with the Nasdaq Composite and Russell 2000 rising more than 3.4 percent in the previous four days. Concern that valuations were too expensive sparked a selloff in early March, pushing both gauges to losses approaching 10 percent. The Nasdaq 100 Index, which rose yesterday to within 0.1 percent from erasing a 7.5 percent selloff from earlier this year, slipped 0.3 percent today.
The Stoxx 600 lost 0.1 percent after a five-day advance that took it to its highest level since January 2008.
Royal Ahold NV lost 3.3 percent after the owner of Stop & Shop stores in the U.S. reported first-quarter earnings that missed analysts’ estimates. Hugo Boss AG retreated 2.5 percent as its majority shareholder sold a stake in the German maker of luxury suits.
Elekta AB sank 9 percent after the maker of radiation-surgery equipment posted quarterly profit that missed projections. Osram Licht AG declined 6.5 percent after the lighting manufacturer spun off from Siemens AG cut its sales forecast for 2014.
Telecom Italia SpA, the country’s biggest phone company, gained 4 percent as Goldman Sachs Group Inc. added it to a conviction-buy list.
A report from Germany’s Federal Labor Agency showed that unemployment in the Europe’s biggest economy unexpectedly increased, with the number of people out of work rising a seasonally adjusted 23,937 to 2.905 million in May. Economists had forecast a decline of 15,000, according to the median of 31 estimates in a Bloomberg News survey. The adjusted jobless rate was unchanged at 6.7 percent, the lowest level in more than two decades.
The MSCI All-Country World Index was little changed after five days of increases that sent it to its highest level since November 2007. The value of equities worldwide is near a record $63.8 trillion. The MSCI AC Asia Pacific Index gained 0.5 percent, following a 0.2 percent decline yesterday.
The MSCI Emerging Markets Index added 0.6 percent, advancing for the first time in three days. The gauge has climbed 4.4 percent in May, heading for its fourth straight monthly advance for its longest rally since 2009.
Lenovo Group Ltd., the world’s biggest maker of personal computers, gained for a seventh day as Chinese technology shares advanced amid speculation local companies will benefit from a government dispute with the U.S. over cyber-spying.
Aluminum advanced 0.7 percent to $1,842 a metric ton, the fourth consecutive gain.
Russian stocks rose, with the Micex Index gaining 0.6 percent, and the ruble weakened 0.3 percent versus the dollar.
Ukraine’s government said it will press on with military operations against pro-Russian rebel fighters after its forces retook Donetsk airport and inflicted “significant” losses on the separatists.
President-elect Petro Poroshenko has vowed to wipe out the rebels and re-establish order across Ukraine after winning office May 25. He must stabilize a shrinking economy and confront separatists who’ve captured swaths of the Donetsk and Luhansk regions. They’ve declared themselves independent and are fighting to join Russia, which annexed Ukraine’s Crimea peninsula in March.
New Zealand’s dollar dropped against all of its 16 major counterparts today as a measure of business confidence worsened. The kiwi fell to the lowest level since March 12, declining 0.8 percent to 84.97 U.S. cents.