Treasuries extended a third straight day of losses after a $24 billion auction of 10-year notes sold at a higher-than-forecast yield. U.S. stocks, the euro and oil erased early gains.
Ten-year U.S. note yields increased four basis points at 3:35 p.m. in New York, topping 2% for the first time in a week. The S&P 500 slipped 0.1% 1,518.16, reversing an early 0.4% advance and retreating from a five-year high, while the Europe Stoxx 600 Index closed 0.4% higher. The 17-nation euro currency depreciated less than 0.1% to $1.3450 after climbing as much as 0.5%. Oil slipped 0.5% to $97.01 a barrel after gaining 0.6%.
Earlier gains in stocks came as Comcast Corp.’s $16.7 billion purchase of the remainder of NBC Universal bolstered optimism in dealmaking, while government data showed retail sales increased in January for a third straight month. In his first State of the Union address last night, Obama called for a higher minimum wage, vowed to begin talks on a trade agreement with the European Union and spend $50 billion on “urgent” infrastructure projects.
“There doesn’t seem like a lot of appetite to add Treasury risk as the economy trends better and bearishness slowly fades,” Ira Jersey, an interest-rate strategist in New York at Credit Suisse Group AG, said before the sale. As a primary dealer, the firm is obliged to bid in U.S. debt auctions. “There is decent reason to think that we are going to have growth that is good enough to keep us at or above 2% for a while.”
Auction Results
The notes sold by the U.S. Treasury today drew a yield of 2.046%, compared with a forecast of 2.039% in a Bloomberg News survey of eight 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 2.68, vs. an average of 2.96 for the past 10 sales.
Industrial and consumer shares led gains among 10 groups in the S&P 500 while telephone, utility and financial companies declined. McDonald’s Corp. lost 1.4% to help lead the Dow Jones Industrial Average lower after Obama announced his plan to raise the minimum wage. Cliffs Natural Resources Inc. tumbled 20% after cutting its dividend.
General Electric Co. climbed 3.3% after agreeing to sell its remaining 49% stake in NBC Universal to Comcast, the largest U.S. cable company, for $16.7 billion. Comcast increased 3.4%.
The S&P 500 has risen to within 3% of its record of 1,565.15 reached in October 2007. It’s more than doubled from its bear-market low in 2009 as the nation emerged from the worst recession since the 1930s.
‘Green’ Bias
“I think the bias as of recent has been consistently green on the screen,” Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which oversees $55 billion, said in a telephone interview. “We didn’t hear anything shockingly different from Obama’s speech that would have pulled investors’ enthusiasm for stocks out of the marketplace.”
U.S. companies are beating analysts’ earnings projections by the smallest margin since 2008 and most forecasts have trailed estimates in what investors should consider “warning signals,” according to Wells Fargo & Co.
Of S&P 500 companies whose earnings topped estimates this reporting season, 53% surprised by more than 1%, Wells Fargo strategist Gina Martin Adams wrote in a report dated Feb. 11. The so-called beat rate this season is poised to be the lowest since 2008 and 12 percentage points below the 10-year average. About 81% of forecasts for next quarter trailed analyst estimates, according to the note.
Euro Factories
Factory production in the euro area rose 0.7% in December from the previous month, beating the 0.2% gain forecast in a Bloomberg survey, the European Union’s statistics office said today. Italy sold 6.63 billion euros ($8.9 billion) of bonds compared with a maximum target of 6.75 billion euros.
The euro weakened against 13 of its 16 main counterparts after gaining against most earlier. Sweden’s krona strengthened against all 16 major peers, jumping 1.1% vs. the dollar. Sweden’s central bank kept the seven-day repo rate at 1%, defying expectations of a cut by nine of the 22 economists surveyed by Bloomberg.
The pound weakened 0.8% vs. the dollar after the Bank of England said inflation will remain above its 2% target for the next two years and risks to the economic recovery are weighted to the downside. The Dollar Index was little changed. Australia’s currency climbed a second day, rising 0.4% to $1.0345, after a gauge of consumer confidence surged to a two-year high.
European Yields
The yield on Italy’s 10-year note fell 11 basis points to 4.40%. The extra yield investors demand to own Italy’s 10-year debt rather than German bunds narrowed 15 basis points to a one-week low of 273 basis points. Spanish bonds rose, pushing the 10-year yield down 12 basis points to 5.20%.
More than three shares gained for every one that fell in the Stoxx 600. Heineken NV climbed 5.7% in Amsterdam as the world’s third-biggest brewer reported full-year earnings that beat estimates. PSA Peugeot Citroen, Europe’s second-largest carmaker, advanced 7.3% after posting a narrower-than-projected loss.
Societe Generale SA, France’s second-biggest bank, fell 3.6% after reporting a quarterly loss. Storebrand ASA sank 8.4% in Oslo after the insurer’s profit missed estimates.
The MSCI Emerging Markets Index jumped the most in two weeks, adding 0.5%. Samsung Electronics Co. and Hyundai Motor Co. led South Korea’s Kospi Index 1.6% higher as a weaker currency boosted exporters’ competitiveness. Russia’s Micex Index closed up 1.7%, snapping a five-day decline, the longest slump since October.
Natural gas surged 2.3% to $3.305 per million British thermal units, leading gains in commodities, amid forecasts of a Midwest chill that may boost demand for the heating fuel. Aluminum rallied 1%, while feed cattle, coffee and cotton lost at least 1% for the biggest declines in the S&P GSCI Index, which was little changed.
