Treasuries Fall as Bond Selloff Extended; Dollar Drops on Data

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Treasuries fell amid renewed selling in European bonds that fueled concern the fixed-income slump is not done. U.S. stocks held declines, while the dollar retreated as weak retail-sales data added to signs the economy is decelerating.

Yields on 10-year Treasury notes rose four basis points to 2.28 percent by 5 p.m. in New York, after rates on similar maturity German bunds climbed five basis points for the 12th increase in 13 sessions. The Standard & Poor’s 500 Index slipped less than 0.1 percent following two days of losses. The Bloomberg Dollar Spot Index sank 0.7 percent. U.S. oil retreated, while gold climbed to a five-week high with silver.

The selloff in European government debt resumed after a brief pause early Wednesday, extending a rout that has erased more than $400 billion from fixed-income markets amid concern over a glut in global bond offerings. U.S. retail sales were little changed in April, despite economists projecting gains, with the Federal Reserve scrutinizing data following a weak first quarter to gauge the right time to raise interest rates.

“We’ve been at the mercy of the bond market because of a news vacuum with corporate earnings finished,” said Kelly Bogdanov, vice president and portfolio analyst at RBC Wealth Management in San Francisco. “Equities have been remarkably resilient in the face of yields and uncertainty about when the Fed will pull the trigger. The fact that we’re up near these highs is a positive for the stock market.”

While the S&P 500 has lost 0.8 percent this week, it is still within 1 percent of a record high. The gauge jumped the most since March on Friday after a report showed hiring in the U.S. bounced back in April from a winter slowdown.

Bond Sale

In the U.S. debt market Wednesday, benchmark 10-year notes initially rose after a $24 billion sale of government debt, before resuming their retreat. Yields touched 2.36 percent Tuesday, the highest level since Nov. 14, and are up from as low as 1.80 percent in April.

Bonds across the euro area reversed earlier gains on concern sales from Asia to the U.S. will overwhelm demand for sovereign securities. German bunds have been at the epicenter of the month-long selloff in fixed-income, with yields rising to as high as 0.78 percent on May 7, from a record low 0.049 percent in April.

The disappointing retail sales report came as the Fed assesses the timing for its first rate increase since 2006. The Bloomberg dollar gauge, which tracks the greenback versus 10 major peers, slid to a four-month low as the greenback declined against most of its main counterparts on concern weak data will spur the Fed to hold off on increasing borrowing costs.

Breakthrough Needed

“We had a couple down days and now all this bad data just pushes out the Fed longer to tighten,” Frank Ingarra, head trader at Greenwich, Connecticut-based Northcoast Asset Management LLC, said by phone. Northcoast has $3 billion under management. “It’s going to be range-bound trading until we get something that will break us through, either the Fed saying they won’t tighten or some phenomenal economic data.”

Australia’s dollar led gains against the greenback, jumping 1.7 percent to its strongest level since January amid bets the country’s central bank may have halted its rate-cut cycle. The New Zealand dollar was in second place, climbing 1.6 percent after policy makers there omitted reference in a report out Wednesday to the currency’s level being unjustified.

Merger activity increased Wednesday, as Williams Cos. agreed to buy the 40 percent of Williams Partners LP it doesn’t already own for $13.8 billion, simplifying its corporate structure. Danaher Corp. will purchase water-systems maker Pall Corp. for $13.8 billion and said it will split itself into two publicly traded companies.

Emerging Markets

The Stoxx Europe 600 Index fell 0.2 percent in a second day of declines. The measure rose as much as 1.1 percent earlier in the day after a report showed the euro area’s economy expanded at its fastest pace in almost two years.

The MSCI Emerging Markets Index rose 0.5 percent as benchmark gauges in Russia, India, Indonesia, South Africa, South Korea and Thailand gained at least 0.6 percent.

U.S. crude futures closed lower for the second time this week after refineries reduced their crude use by the most in almost four months. West Texas Intermediate slipped 0.4 percent to $60.50 a barrel. Brent oil fell 12 cents to $66.74 a barrel.

The prospect of a delay in U.S. rate increases boosted precious metals, with gold futures for June delivery up 2.2 percent to $1,218.20 an ounce in New York. The price rose to $1,218.50, the highest level for a most-active contract since April 6. Silver futures for July delivery surged 4.2 percent to $17.221 an ounce on the Comex.

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