Treasuries fall with U.S. stocks while New Zealand kiwi weakens

Treasuries fell as stronger growth in American service industries dimmed prospects for Federal Reserve bond buying, while U.S. benchmark stock indexes retreated from records. The New Zealand dollar slid as a milk-powder exporter said some shipments may be tainted.

Ten-year Treasury yields rose four basis points to 2.64% as of 4 p.m. in New York. The Standard & Poor’s 500 Index slipped 0.2% while the Stoxx Europe 600 Index closed 0.2% higher after climbing as much as 0.6%. The yen strengthened 0.7% to 98.30 per dollar while New Zealand’s dollar weakened against 15 of its 16 main peers. Wheat, sugar and gasoline lost more than 1.3% to lead the S&P GSCI Index of commodities lower.

The Institute for Supply Management’s non-manufacturing index increased to 56 in July, higher than the median economist estimate of 53.1 and the prior month’s 52.2. Euro-area services output shrank at a slower pace than initially estimated in July, London-based Markit Economics said today. An index of China’s non-manufacturing sectors in July increased for the first time since March. Stocks extended losses as Federal Reserve Bank of Dallas President Richard Fisher said the central bank is closer to slowing its bond purchases.

“The consensus still remains that tapering is on track to be announced in September,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “That reflects the recent series of strong economic data. The Treasury market is backing up as we get set to take down this week’s refunding auctions.”

The U.S. is scheduled to sell $72 billion of three-, 10-and 30-year securities this week.

Yield Gaps

Thirty-year Treasury bond yields increased five basis points to 3.74% and two-year rates were up less than one basis point at 0.30%. Two years after S&P stripped the U.S. of its top rating, America’s credit quality is getting a boost from economic growth outpacing that of the 12 nations graded AAA.

The gap between Treasury five- and 10-year note yields is wider than that for the higher-rated sovereigns, showing fixed- income investors anticipate the U.S. will grow faster than its peers, according to data compiled by Bloomberg. Other measures also show the U.S. improving, as the cost to insure against default is the lowest since 2009, the dollar has risen the most since 2008 and stocks are trading near all-time highs.

The Fed’s Fisher, one of the most vocal critics of quantitative easing, warned investors not to rely on the central bank’s $85 billion in monthly bond purchases.

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