Bonds Climb as Oil Plunge Damps Inflation Jitters; Ruble Slumps

  • Crude sinks to one-month low as OPEC accord remains unresolved
  • Most Asian futures signal losses after S&P 500 fluctuates

OPEC Sees More Cut Exemption Requests

Bonds rose as a plunge in crude oil eased concern that quickening inflation would erode the value of fixed interest payments. Stocks were little changed.

Government debt advanced in 20 out of 25 developed markets tracked by Bloomberg, with Treasuries posting their first back-to-back gain in two weeks. Oil sank to a one-month low after talks between OPEC and other producers failed to yield details on an accord to cut output. Russia’s ruble and Colombia’s peso led losses in currencies of crude exporters. U.S. equities traded near a six-week low as a rout in energy shares offset a pick up in deals.

Bonds have come under pressure this month on speculation that major central banks will gradually reduce their extraordinary stimulus while a surge in oil bolstered wagers on higher energy costs. Concern over the Organization of Petroleum Exporting Countries’ ability to implement its first supply cut in eight years has spurred a selloff in crude, helping ease the rout in debt markets. While there’s a perception that most advanced economies will still be accommodative on stimulus, investors bet the U.S. will boost interest rates this year.

“People are really responding to this idea that central banks will be suddenly shifting away from their excess accommodation,” said Christopher Sullivan, who oversees $2.3 billion as chief investment officer at United Nations Federal Credit Union in New York. “The U.S. is further along in that aspect of monetary policy. It’s likely the Fed moves before year-end.”

The bond market sees the Federal Reserve keeping rates unchanged when it meets this week and raising them at its final gathering of the year, according to data compiled by Bloomberg based on futures. The probability of a move in December is about 71 percent.

Consumer purchases climbed in September by the most in three months as incomes grew, signaling momentum in the biggest part of the U.S. economy, a Commerce Department report showed Monday. U.S. employers added 175,000 workers in October, the most since July, according to a survey of economists before the monthly payroll report on Nov. 4.

Bonds

Benchmark 10-year Treasury yields fell two basis points, or 0.02 percentage point, to 1.83 percent as of 5 p.m. in New York, based on Bloomberg Bond Trader data. The yield reached 1.88 percent on Oct. 28, the highest level since May.

“I see yields going up,” said Soniya Chen, a government bond analyst at Hontai Life Insurance Co. in Taipei, with $6.34 billion in assets. “The U.S. economy is performing better than the rest of the world.”

Ten-year yields may approach 2 percent over the next six months, according to Chen, who said she’s stockpiling cash.

Italy’s bonds were the worst performers among their euro-area peers over the past month as polls increasingly signaled a constitutional referendum may be rejected by voters, threatening to destabilize the government. The yield on Italian 10-year bonds rose two basis points, or 0.02 percentage point, to 1.68 percent Monday.

Benchmark German 10-year bund yields were little changed at 0.16 percent, while those on similar-maturity Spanish debt declined two basis points to 1.21 percent.

Stocks

The S&P 500 Index was little changed at 2,126.15 as about 100 more stocks rose as fell. The U.S. benchmark capped its biggest monthly drop since January, falling in three of the past four weeks for a 1.9 percent loss in October. U.S. shares suffered a late selloff on Friday after the Federal Bureau of Investigation said the agency is reviewing e-mails possibly related to Democratic presidential candidate Hillary Clinton’s use of a private server.

“The best guess for U.S. markets is still that they are stuck in no-man’s land,” said Ralf Zimmerman, an equity strategist at Bankhaus Lampe KG based in Dusseldorf, Germany. “Investors will try to digest the implications of the latest twist in the U.S. election theater and will focus on Wednesday’s Fed meeting. Earnings are stabilizing and picking up a bit but valuations are stretched.”

The S&P 500 has been stuck in a trading range of about 65 points after reaching a record in August. It hasn’t climbed for three consecutive sessions in a month, while trading at close to 18 times forecast earnings, its most expensive level since 2009.

In corporate news Monday, Baker Hughes Inc. and General Electric Co. agreed to combine their oil and gas businesses, the latest in a series of deals. Level 3 Communications Inc. agreed to a $34 billion cash-and-stock takeover offer from CenturyLink Inc. Valeant Pharmaceuticals International Inc. plunged after a report said the U.S. Department of Justice is building a case against the drugmaker for potential accounting fraud.

The Stoxx Europe 600 Index fell 0.5 percent, its worst drop in two weeks. BP Plc and Royal Dutch Shell Plc fell at least 1.4 percent. Drugmaker Shire Plc slid after Express Scripts Holding Co., a U.S. manager of prescription-medicine benefits, said some hemophilia treatments are at risk of being excluded from lists of covered medicines WPP Plc climbed after the world’s largest advertising company posted an increase in quarterly sales. 

Most Asian index futures retreated, with contracts on the Nikkei 225 Stock Average down 0.3 percent in Osaka. Futures on equity gauges in Australia and South Korea slipped at least 0.1 percent.

Currencies

The Bloomberg Dollar Spot Index, which measures the U.S. currency’s performance against a basket of 10 major counterparts, was little changed. It’s gained 2.2 percent this month. The greenback barely moved against the euro, and added 0.1 percent to 104.82 yen.

Investors will be seeking the finer points of the Bank of Japan’s new policy framework as a two-day meeting comes to an end on Tuesday. One focus is exactly how the BOJ will meet its new target for 10-year bond yields, and the implications for its asset purchases. All but two of the 43 economists surveyed by Bloomberg expect no additional easing this month. The two who said they expected easing both forecast a cut to the negative interest rate.

The pound remained higher, gaining 0.5 percent, after Bank of England Governor Mark Carney said he’ll extend his time in office by a year to 2019 to guide the economy through Britain’s split from the European Union. Sterling was the worst-performing major currency this month.

Russia’s ruble led losses in emerging markets, while Colombia’s peso approached its lowest level in three months. The rand surged on speculation South Africa may avert a credit-rating downgrade this year after prosecutors dropped fraud charges against Finance Minister Pravin Gordhan.

Commodities

West Texas Intermediate for December delivery dropped 3.8 percent to $46.86 a barrel on the New York Mercantile Exchange, while Brent for December settlement, which expired Monday, fell 2.8 percent to $48.30 a barrel.

OPEC ended talks with non-members such as Russia and Brazil on Saturday without an agreement on stabilizing the market, Brazil’s Oil and Gas Secretary Marcio Felix said. The previous day, the body still hadn’t resolved how to allocate among its members an output cut announced last month. Iraq has joined Iran, Nigeria and Libya in seeking to be excluded from any curbs.

“People are getting weary about the chances of OPEC and non-OPEC coming to an agreement to cut supply,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “There are so many requests for exemptions one has to wonder who will be left to make the cuts.”

Zinc led gains among industrial metals, while sugar and cotton slid more than 2.5 percent. Gold gained 0.1 percent to $1,277.21 an ounce, rising for a third session.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE