BLBG: Bonds Rise as Economic Recovery Seen Sputtering; Stocks Decline
By Justin Carrigan
Jan. 12 (Bloomberg) -- Government bonds rose, driving 10- year Treasury yields down the most in a week, while European stocks and U.S. index futures fell on concern the pace of the economic recovery will falter.
The benchmark U.S. note yield declined six basis points to 3.76 percent at 10:03 a.m. in London, while the yield on the German bund dropped to the lowest level this year. Europe’s Dow Jones Stoxx 600 Index lost 0.5 percent and futures on the Standard & Poor’s 500 Index slipped 0.4 percent. Platinum rose to a 17-month high.
The U.S. rebound will require low interest rates until it shows “momentum,” Federal Reserve Bank of Atlanta President Dennis Lockhart said yesterday. Futures contracts show traders see an 8 percent chance of the Fed raising its target overnight rate to 0.5 percent in June, down from a 47 percent likelihood a month ago. Alcoa Inc., the largest U.S. aluminum producer, posted earnings that trailed analysts’ estimates.
“There’s some flight to safety going on,” said Peter Chatwell, a fixed-income strategist in London at Calyon, the investment-banking unit of Credit Agricole SA. “There’s some switching into the safe havens.”
The yield advantage on two-year U.S. notes versus comparable Japanese bonds slipped for a third day, narrowing two basis points to 76, the lowest since Dec. 23. The German bund yield declined three basis points to 3.31 percent, while the 10- year Australian note yield fell 5 basis points to 5.63 percent.
Record Sales
Governments around the world are selling unprecedented amounts of debt to help keep the economic recovery on track. The U.S. will sell a record-tying $40 billion of three-year notes today in the second of four auctions this week totaling $84 billion. The Netherlands is scheduled to issue 4.5 billion euros ($6.5 billion) of three-year notes.
Greek bonds fell, with the yield on the two-year note rising 16 basis points, the most in almost a month, after the European Commission said there were “irregularities” in the government’s deficit reports last April and October.
The central bank of China, whose economy is helping haul the world out of its worst recession since World War II, sold bills at a higher yield for the second time in a week, increasing the likelihood that policy makers will raise the benchmark interest rate in the first half of the year.
“China has been vocal about the risks of hot-money inflows, inflation and speculative bubbles for months,” Andrea Cicione, a credit strategist at BNP Paribas SA in London wrote in a note to investors. “Surprisingly strong credit growth last week may have prompted the central bank to take action.”
Stocks Fall
The MSCI World Index of 23 developed nations’ stocks sank 0.3 percent. Norsk Hydro ASA, Europe’s third-largest aluminum producer, led basic resources shares lower, falling 2.9 percent in Oslo. Beiersdorf AG, the German maker of Nivea skin creams, dropped 3 percent in Frankfurt after reporting profit that missed analyst estimates. In Stockholm, Assa Abloy AB slid 3.8 percent as Goldman Sachs Group Inc. advised investors to sell the shares.
Air France-KLM Group led European airlines lower, falling 2.6 percent in Paris, as Japan Airlines Corp. plunged 45 percent in Tokyo on speculation it will file for bankruptcy.
Most Asian stocks gained after the biggest jump in Chinese auto sales in at least 10 years. SAIC Motor Corp. climbed 3.5 percent in Shanghai. Infosys, India’s No. 2 software exporter, gained 3.8 percent in Mumbai after reporting better-than- estimated profit.
Alcoa, Intel
The decline in U.S. futures indicated the S&P 500 may snap six days of gains. Alcoa fell 6.9 percent in German trading. Profit excluding certain items was 1 cent a share in the fourth quarter, trailing the 6-cent average estimate of analysts, the New York-based company reported yesterday. Sales fell 4.5 percent to $5.43 billion.
Intel Corp. and JPMorgan Chase & Co. are among companies scheduled to report results this week. Combined profit for S&P 500 companies surged 62 percent during the fourth quarter in the first increase since 2007, according to the average analyst estimate in a Bloomberg survey.
The MSCI Emerging Markets Index fell for the first time in three days, sliding 0.5 percent, as Dubai, Hungary and Russia declined more than 1 percent. Yields on developing nation bonds rose three basis points relative to U.S. Treasuries after Indonesia scaled back a sale of dollar-denominated bonds to $2 billion and canceled plans to sell 30-year notes. The rand fell 0.7 percent against the dollar as the ruble, zloty and Turkey’s lira weakened.
Platinum, Palladium
Platinum for immediate delivery advanced 2.3 percent to $1,618.13 an ounce, the most since August 2008. Palladium added 2.1 percent to $443.38 an ounce, the highest since July 2008. The metals, used in car catalysts, advanced as China’s vehicle sales jumped 46 percent last year and investors anticipated demand for new U.S. exchange-traded funds backed by platinum and palladium.
Wheat fell 1.1 percent to $5.6625 a bushel in Chicago before the release today of a U.S. report that may show an increase in inventories.
Oil fell for a second day, dropping as much as 1.1 percent to $81.53 in New York, on forecasts for warmer U.S. weather. In the U.K., gas for same-day delivery fell as much as 26 percent after Norwegian exports increased.
The dollar fell against the yen on waning expectations the Fed will raise interest rates soon. The dollar fell 0.2 percent to 91.91 yen and was at $1.4501 per euro, from $1.4513 in New York late yesterday. The yen strengthened 0.3 percent to 133.29 per euro.
The cost of insuring against losses on European corporate bonds rose, with contracts on the Markit iTraxx Crossover Index of credit-default swaps on 50 companies climbing 11.5 basis points to 393.5, according to JPMorgan Chase & Co. The index yesterday fell to the lowest level since December 2007.
To contact the reporter on this story: David Merritt in London on dmerritt1@bloomberg.net.
