Stocks Climb as Treasuries, Yen Retreat on Economic Optimism
March 10, 2010, 5:01 PM ESTBy Michael P. Regan and Craig Trudell
March 10 (Bloomberg) -- Stocks rose, erasing the 2010 loss for a gauge of emerging markets, while Treasuries and the yen fell as data on U.S. wholesale inventories and improving corporate bond markets bolstered optimism on the economy.
The MSCI Emerging Markets Index advanced 0.7 percent to the highest level in seven weeks at 4:46 p.m. in New York. The Standard & Poor’s 500 Index gained for the eighth time in nine days, climbing 0.5 percent to 1,145.61. The yen weakened against all 16 major counterparts on growing demand for higher-yielding assets. Treasuries fell, sending the 2-year yield up 3 basis points to 0.91 percent.
Inventories at U.S. wholesalers dropped 0.2 percent in January, signaling companies had difficulty keeping pace with demand. Financial shares led the S&P 500 higher as Citigroup Inc.’s sale of trust preferred securities and a rally in American International Group Inc.’s bonds bolstered optimism in the viability of the companies.
“People are moving over to the camp of ‘OK, maybe we are recovering,’” said Dan Dolan, the Garden City, New York-based director of wealth management strategies at Select Sector SPDR Trust. The nine Select Sector SPDR funds have about $32 billion in assets. “When you look at where we were at the lows a year ago, the world was coming to an end, and it was because the financial sector was imploding. Today, the financial sector is cleaning up.”
Financials Rally
AIG rallied for a fifth straight day, its longest streak since August. The shares have jumped 46 percent since March 3 on speculation the company will be able to repay a government bailout and meet other debt obligations. The insurer reaped at least $3.2 billion for bondholders after announcing deals to sell its two largest non-U.S. life insurance divisions for $51 billion.
Citigroup climbed 3.7 percent and is up 16 percent since March 3. Citigroup Inc. sold $2 billion of 30-year trust preferred securities with an 8.5 percent yield, according to a person familiar with the offering who declined to be identified because the bank hasn’t disclosed terms.
Financial shares in the S&P 500 gained for a ninth-straight day, the longest rally in 12 years. The group increased 1.1 percent today to the highest level since October.
Benchmark U.S. indexes pared gains in afternoon trading after the S&P 500 climbed within 2 points of its 2010 high and speculation grew that accelerating inflation will force China to raise interest rates.
China Inflation
Consumer prices in China may have increased 2.5 percent in February from a year earlier and producer prices probably rose 5.1 percent, the biggest gains in 16 months, according to the median estimates in Bloomberg surveys of economists. The data will be released tonight.
“Investors are worried about the numbers coming out of China,” said Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees about $667 billion. “If it’s worse than what the market anticipates, we could start seeing more of a selloff in commodities. There’s concern that China could tighten more than what people expect.”
Yields on corporate bonds are near five-year lows, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. They fell to 4.015 percent on Feb. 26, the lowest since May 31, 2005, and were 4.023 percent as of March 9. Average spreads over Treasuries fell to 1.6 percentage points, matching the lowest this year.
Default Swaps Drop
The cost to protect against defaults on U.S. corporate bonds declined to the lowest in almost eight weeks as a surge in company bond sales signaled increased investor confidence. Borrowers sold $13.9 billion of U.S. corporate bonds yesterday, the busiest day in more than a month.
Credit-default swaps on the Markit CDX North America Investment Grade Index Series 13, which is linked to 125 companies, fell 1 basis point to a mid-price of 82.5 basis points as of 1:05 p.m. in New York, according to broker Phoenix Partners Group.
Ten-year notes pared losses after the bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was the highest on record on the Treasury’s sale of $21 billion of the debt. The yield on the 10-year note increased 2 basis points to 3.72 percent.
The Dollar Index, which gauges the currency against six major U.S. trading partners, slipped 0.2 percent to 80.413.
Emerging market gains were paced by a 2.4 percent rally in Ukraine’s PFTS index, the seventh day of gains as Viktor Yanukovych moves toward forming a government after winning last month’s election. Mol Nyrt., Hungary’s largest refiner, jumped 4.2 percent after the company discovered crude oil in the Kurdistan region of northern Iraq.
European Shares
The Stoxx Europe 600 Index advanced 0.6 percent after fluctuating earlier. The MSCI World Index of 23 developed nations’ stocks increased 0.5 percent.
Fortis rose 3.1 percent in Brussels after the owner of Belgium’s biggest life insurer reported earnings that topped analysts’ estimates. Tullett Prebon Plc surged 26 percent after saying it’s in early takeover talks while rival ICAP Plc, the world’s biggest broker of transactions between banks, rallied 4.5 percent.
Romania’s Bucharest BET Index gained 0.7 percent as the government revived a planned sale of Eurobonds that were postponed in November when the government collapsed. Turkey’s lira weakened against 12 of 17 major currencies, losing 0.4 percent against the euro, after the International Monetary Fund said talks with the country on a new loan program are “no longer taking place.”
Pound Weakens
The British pound dropped against 13 of 16 major currencies after U.K. factory production unexpectedly fell in January for the first time in five months, dropping 0.9 percent from December, the Office for National Statistics said in London. U.K. Prime Minister Gordon Brown said the economic recovery remains fragile and is in its early stages.
The cost of insuring European government bonds using credit-default swaps tumbled, signaling investors agree with former European Commission President Romano Prodi’s view that the worst of the Greek budget deficit crisis is over.
“For Greece, the problem is completely over,” Prodi, who was also Italian prime minister, said in an interview in Shanghai. Greek Prime Minister George Papandreou said President Barack Obama expressed support for measures being taken to deal with Greece’s financial crisis.
The MSCI Asia Pacific Index slipped 0.2 percent. Toyota Motor Corp., the world’s biggest carmaker, retreated 1.4 percent in Tokyo. Telstra Corp., Australia’s largest telephone company, rose 2.8 percent in Sydney amid speculation it will avoid a breakup.
--With assistance from Gabrielle Coppola, Scott Schnipper, John Detrixhe, Cordell Eddings, Susanne Walker, Pierre Paulden and Caroline Salas in New York and Abigail Moses, Daniel Tilles, Paul Armstrong and Michael Patterson in London. Editor: Chris Nagi.
To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; Craig Trudell in New York at ctrudell1@bloomberg.net.
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.
