U.S. stocks gained while Treasuries trimmed an earlier advance as the House voted to temporarily suspend the the federal debt limit. The yen climbed for a third day after the Bank of Japan deferred new monetary stimulus.
The Standard & Poor’s 500 Index added 0.1% to 1,494.37 at 1:26 p.m., while a rally in International Business Machines Corp. drove the Dow Jones Industrial Average up more than 75 points to above its best closing level since October 2007. Ten-year note yields decreased one basis points to 1.83%. Japan’s currency rose 0.2% to 88.55 per dollar, poised for its first three-day increase since November. Portugal’s 10-year yield slid as the nation prepared to return to the bond market.
The House voted 285-144 to lift the nation’s debt ceiling through mid-May as a Bloomberg poll showed global investors say the state of the American government’s finances is the greatest risk to the world economy. The International Monetary Fund cut its global growth forecasts and now projects a second year of contraction in the euro region as progress in battling Europe’s debt crisis fails to produce economic recovery.
“We are still pretty constrained by the range and the debt-ceiling debate,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “We are clearly closer to the bottom of the range, 1.75% to 2.05% on the 10-year. We may test the lower ends of this range.”
Thirty-year bonds held two days of gains, with the yield little changed at 3.03%, as the Federal Reserve purchased $1.474 billion in longer-term debt. Inflation expectations dropped from the highest in almost three months as the U.S. prepares to sell $15 billion in 10-year inflation-indexed debt tomorrow.
The House voted to suspend the government’s $16.4 trillion borrowing limit until May 19, when the measure would allow the U.S.’s borrowing authority to automatically be increased to accommodate the amount the Treasury borrowed during those three months. Republicans plan to use two other approaching deadlines, the March 1 start of automatic spending cuts and the need to pass a bill to fund the government by the end of March, to extract spending reductions.
The debt ceiling “is a risk that is constantly weighing,” said Bernard Delattre, president of Altimeo Asset Management in Paris. “It can bring volatility to the market in the short term.”
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