BLBG: Treasuries Advance After Note Auction as U.S. Stocks, Crude Oil Retreat
Treasuries rose after an auction of $21 billion in 10-year notes drew higher-than-forecast demand, while oil and U.S. stocks fell as investors weighed an increase in crude supplies and escalating violence in Libya.
Ten-year Treasury yields lost eight basis points to 3.47 percent as of 4 p.m. in New York. Oil slipped 0.6 percent to $104.38 a barrel. The Standard & Poor’s 500 Index fell 0.1 percent to 1,320.02, with technology shares the biggest drag as networking-gear maker Finisar Corp. (FNSR)’s forecast missed estimates. Gold rose 0.2 percent to $1,429.60 an ounce and the Swiss franc gained as investors pursued haven assets. New Zealand’s dollar slid after the nation’s central bank cut interest rates.
Oil’s retreat followed government data showing supplies at a major U.S. hub surged, erasing an earlier gain spurred as Muammar Qaddafi stepped up attacks on towns in western Libya. The S&P 500’s rebound from its bear-market low exactly two years ago peaked on Feb. 18, with the gauge down 1.7 percent since then amid speculation higher energy costs will stifle growth. Geopolitical uncertainty helped send demand at today’s Treasury auction to the highest in almost a year.
“The market was surprised by the strength of the auction,” said Christian Cooper, head of U.S. dollar derivatives trading in New York at Jefferies & Co., one of the 20 primary dealers that trade with the Federal Reserve. “The real concern is, will oil prices provide legitimate headwinds to the economy and is the market beginning to price in further unrest by bidding the auction so aggressively?”
Treasury Auction
At today’s 10-year note auction, the securities drew a yield of 3.499 percent, compared with the average forecast of 3.535 percent in a Bloomberg News survey of 8 of the Federal Reserve’s 20 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.32, compared with an average of 3.08 for the previous 10 sales.
Investors snapped up Treasuries as credit-default swaps for indebted European nations rose, indicating more concern about their creditworthiness. Contracts on Portugal and Greece climbed to the highest in two months, according to data provider CMA.
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., eliminated government-related debt from his flagship fund. Pimco’s $237 billion Total Return Fund last held zero government-related debt in January 2009. Gross had cut the holdings to 12 percent of assets in January, according to the company’s website. The fund’s net cash-and- equivalent position surged from 5 percent to 23 percent, the highest since May 2008.
Treasury Yields
Yields on Treasuries may be too low to sustain demand for U.S. government debt as the Federal Reserve approaches the end of its second round of quantitative easing, Gross wrote in a monthly investment outlook posted on Pimco’s website on March 2. Gross mentioned that Pimco may be a buyer of Treasuries if yields rise to attractive levels.
Brent oil for April delivery jumped 2.4 percent to $115.78 a barrel in London. Violence in Libya has cut the nation’s oil exports by 1 million barrels a day, or about two-thirds, according to the International Energy Agency. Gasoline on the New York Mercantile Exchange surged 2.7 percent to $3.0272 a gallon after falling 3.2 percent in the previous two days.
Oil futures rose as much as 0.9 percent in New York before erasing gains as supplies at Cushing, Oklahoma, the delivery point for West Texas Intermediate, climbed 1.69 million barrels to 40.3 million last week, the highest level since the Energy Department began gathering data at the hub.
‘Trying to Digest’
“The markets are trying to digest all the news, from questions about stability in the Middle East to renewed concerns about global growth,” said James Gaul, a money manager at Boston Advisors LLC in Boston, which oversees $1.7 billion. “We know that Libya is not going to be the cause of a big disruption in oil supplies, it’s the uncertainty about future oil prices that has the market at an edge.”
Technology shares in the S&P 500 lost 0.6 percent as a group. Finisar, a maker of fiber-optic transmission gear that is not in the index, slid 39 percent for its biggest decline since going public in 1999. Other makers of networking equipment also slumped, with JDS Uniphase Corp. tumbling 17 percent for the biggest drop in the S&P 500 and Ciena Corp. losing 5.3 percent.
The money managers who picked the global stock market bottom say now is no time to sell as the biggest equity rally since 1955 starts its third year. Governments and central banks pumped more than $12 trillion into the financial system to boost growth after the worst global recession since the 1930s. U.S. mortgage applications rose 16 percent last week, the most since June and a signal housing may be stabilizing, an index from the Mortgage Bankers Association showed today.
Less Than Average
Even after almost doubling in 24 months, the S&P 500’s two- year return is 36 percentage points below the average bull- market gain of 131 percent since 1962, according to data compiled by Bloomberg and Birinyi Associates Inc. The 730-day rally without a decline of 20 percent or more compares with an average duration of 1,407 days, the data show.
Alcatel-Lucent SA lost 2.6 percent to pace falling shares in Europe after Finisar’s forecast. Tullow Oil Plc dropped 3.2 percent in London after the Africa-focused explorer reported profit that lagged forecasts. Iberdrola Renovables jumped 11 percent after parent company Iberdrola SA bid 2.5 billion euros ($3.5 billion) to buy out minority investors. Tognum rallied 7.3 percent in Germany as Daimler AG and Rolls-Royce Group Plc offered to buy the company.
Kiwi Falls
The New Zealand dollar fell against all 16 major peers and weakened to a five-month low versus the dollar, dropping as much as 0.8 percent to 73.36 U.S. cents, after the Reserve Bank cut the benchmark interest rate by 0.5 percentage point to match a record low 2.5 percent to help the economy recover from its deadliest earthquake in 80 years.
While oil rises and Europe struggles to contain its debt crisis, evidence that the global economy is picking up pace is prompting other policy makers to tighten monetary policy. Thailand boosted borrowing costs today for the fifth time since June, a day after Vietnam raised its main policy interest rate to 12 percent. U.K. policy makers tomorrow will probably hold the key rate at 0.5 percent as they debate the risks of inflation that’s double their 2 percent target.
The MSCI Asia Pacific Index rose 0.3 percent and Japan’s Nikkei 225 Stock Average gained 0.6 percent as the nation’s machinery orders increased more than forecast in January. The MSCI Emerging Markets Index increased 0.1 percent.
The Bloomberg GCC 200 Index (BGCC200) of Persian Gulf stocks rose 1.3 percent, its fifth straight gain, on speculation OPEC will consider boosting oil output to compensate for disruptions in Libya and as the region’s states weigh an aid plan for Bahrain and Oman. Qatar’s QE Index (DSM) jumped 2 percent and Dubai’s DFM General Index (DFMGI) rose 2.2 percent.
To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net.
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.
