Stocks retreat amid budget deadlock while Treasuries, gold fall

Treasury Auction

Treasuries remained lower following an auction of $13 billion of 30-year bonds that drew a yield of 2.917 percent, compared with a forecast of 2.889 percent in a Bloomberg News survey of six of the Federal Reserve’s 21 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.5, versus an average 2.61 at the past 10 sales.

“It was a good set of data,” said Tom Porcelli, chief U.S. economist in New York at Royal Bank of Canada’s RBC Capital Markets unit, a primary dealer. “It appears the labor market got a little bit of a boost in November. Combine that with a better sales outcome, and the Treasury market reaction is appropriate.”

The Fed said yesterday it will buy $45 billion of Treasuries per month starting in January, in addition to its existing $40 billion monthly purchases of mortgage debt.

Interest rates will stay low “at least as long” as unemployment remains above 6.5 percent and if inflation is projected to be no more than 2.5 percent, the central bank said.

‘Horrific’ Forecasting

“The unemployment rate is declining just about 1 percent a year for the past two years, and could be not far off 6.5 percent in 12 months,” Fred Goodwin, a strategist at State Street Corp. in London, wrote in a research note. “The Fed is horrific at forecasting. They have completely underestimated how fast the unemployment rate would fall from the beginning of this cycle. Why are they suddenly going to get this right?”

While the Fed’s announcement sparked a brief rally in U.S. stocks yesterday, most of the gains were erased after Fed Chairman Ben S. Bernanke said that monetary stimulus can’t fully offset the effect of the fiscal cliff.

The Stoxx Europe 600 Index declined 0.4 percent, ending the longest run of gains in 19 months. Volvo AB, the world’s second- largest truckmaker, slid 4.3 percent as Renault SA sold its 6.5 percent stake for 12.8 billion kronor ($1.92 billion) to boost funding. Renault, France’s second-biggest automaker, climbed 1.5 percent.

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