Bloomberg News

Treasuries Decline, S&P 500 Advances as Commodity Producers Rise

October 11, 2011

Oct. 11 (Bloomberg) -- Treasuries fell, pushing 10-year yields to a one-month high, after the U.S. sold $32 billion in three-year notes and concern about Europe’s debt crisis eased. Most U.S. stocks advanced as commodity and industrial companies gained while telephone and utility shares fell.

The 10-year note’s yield climbed seven basis points to 2.15 percent at 4 p.m. New York time as trading resumed following the Columbus Day holiday. The Standard & Poor’s 500 Index climbed 0.1 percent after falling as much as 0.6 percent. The S&P GSCI Index of commodities rallied 0.9 percent after retreating as much as 1.3 percent. The euro strengthened 0.1 percent to $1.3648, recovering from a 0.6 percent slide.

U.S. equities rallied yesterday, sending the S&P 500 up 3.4 percent for its biggest gain since August, as France and Germany pledged to produce a plan to recapitalize banks struggling with losses from government bonds. Slovakia, the only country that hasn’t ratified the enhanced European bailout fund, failed to approve the package, setting up the need for a second vote. International inspectors said Greece will likely receive its next rescue loan in early November. Alcoa Inc. reported third- quarter results that trailed analysts’ estimates.

“With bonds closed yesterday, the market is catching up to where stocks were trading,” said Dan Greenhaus, chief global strategist at BTIG LLC in New York. “The idea that European leaders are finally wrapping their head around the issue provides less negative sentiment in the market.”

Treasury Auctions

U.S. three-year note yields climbed for a fifth day, rising three points to 0.52 percent. The notes sold today drew a yield of 0.544 percent, compared with the average forecast of 0.540 percent in a Bloomberg News survey of 11 of the Federal Reserve’s 22 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of debt offered, was 3.30, versus an average of 3.17 for the past 10 sales. The Fed will sell up to $9 billion tomorrow of Treasuries due in 2013 in a program to support the economy.

The S&P 500 yesterday capped its steepest rally over five sessions since March 2009, extending its rebound from a 13-month low on Oct. 3 to 8.7 percent.

“Investors are a little more confident,” Jonathan Vyorst, who helps oversee $2.2 billion at Albany, New York-based Paradigm Capital Management Inc., said in a telephone interview. “The selling had gotten too extreme. The rallies that we’ve seen were just people calming down a little bit. What happens now depends on corporate earnings and depends on headlines.”

Alcoa Earnings

Alcoa, the biggest U.S. aluminum producer, became the first company of the Dow to report results for the third quarter. Its shares climbed 2.1 percent in regular trading, then tumbled 4.8 percent at 5:08 New York time after the earnings were released. Excluding restructuring costs, Alcoa’s earnings were about 14 cents a share. The average estimate of 15 analysts surveyed by Bloomberg was for 22 cents.

S&P 500 earnings, excluding financial companies, are forecast to have increased 14 percent for the third quarter, the smallest gain since the end of 2009, analysts’ estimates compiled by Bloomberg show.

Goldman Sachs Group Inc., whose shares have fallen more than 40 percent this year, may report its lowest quarterly profit since the 2008 financial crisis while Wells Fargo & Co. is headed for record earnings.

Bank Results

Third-quarter U.S. bank earnings, which kick off with JPMorgan Chase & Co. on Oct. 13, will show that investment- banking businesses such as bond trading and merger advice declined, while retail operations like mortgage lending prospered, according to analysts including Richard Staite at Atlantic Equities LLP in London.

The Morgan Stanley Cyclical Index of companies most-tied to economic growth added 1 percent today. Gauges of utility and telephone providers in the S&P 500 lost at least 1 percent. The Dow Jones Transportation Average, a proxy for the economy, gained 0.7 percent. Apple Inc. increased 3 percent to $400.29. Bank of America Corp. climbed 1.4 percent to $6.37. Caterpillar Inc. jumped 1.9 percent to $80.66.

About three stocks retreated for every two that advanced in the Stoxx Europe 600 Index, which slipped 0.3 percent amid uncertainty over Slovakia’s vote on the revised bailout fund. Europe’s regional index rallied 8.5 percent in four days through yesterday, the most since November 2008.

National Bank of Greece SA and EFG Eurobank Ergasias SA sank more than 16 percent to the lowest levels on record. ASML Holding NV and STMicroelectronics NV led semiconductor shares lower after analyst downgrades. Remy Cointreau SA, the maker of Remy Martin, advanced after Berenberg Bank recommended buying the shares.

Slovakia Vote

After U.S. and European markets closed, Slovak lawmakers failed to approve an overhaul of Europe’s bailout fund, toppling the government. Smer, the largest opposition party, which didn’t back the legislation today, will support the changes in a second vote, ensuring it will pass, party leader Robert Fico told reporters in the capital Bratislava.

Spanish banks including Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA had their ratings cut by S&P, which cited “dimming” growth prospects and “heightened” market turbulence. European Commission President Jose Barroso said he’ll present proposals tomorrow on the recapitalization of banks as Europe’s leaders struggle to tackle the region’s debt crisis.

Greek Bonds

Greek 10-year bonds pared losses, with the 10-year yield up 15 basis points at 24.06 percent after climbing as much as 76 basis points. A European Union, International Monetary Fund and European Central Bank team of inspectors, known as the troika, said Greece has made important progress in fiscal consolidation, according to an e-mailed statement from the European Commission’s offices in Athens on completion of a review of the country’s economy. Once the Eurogroup and the IMF’s Executive Board have approved the conclusions of the fifth review, the next tranche of 8 billion euros will become available, most likely, in early November, the statement said.

Luxembourg’s Prime Minister Jean-Claude Juncker, who leads the group of euro-area finance ministers, said Greek bondholders may need to take a writedown of more than 60 percent on the nation’s debt. His spokesman, Guy Schuller, later said he meant that the so-called haircuts could exceed the 21 percent already agreed in July.

The Italian two-year note yield rose one basis points even as borrowing costs fell and demand climbed at a sale of 9.5 billion euros ($12.9 billion) of 74- and 367-day bills. Greece auctioned 1.3 billion euros of 186-day securities, while the Netherlands issued 2.7 billion euros of 2017 notes.

Euro, Pound

The euro gained for a second day versus the dollar after yesterday surging 2 percent, the most in 15 months. The 17- nation currency strengthened 0.2 percent against the yen after rallying 1.9 percent yesterday.

The pound fell 0.4 percent to $1.5611 after a report showed U.K. manufacturing slid more than economists forecast in August, adding to signs that the recovery continued to struggle in the third quarter. Factory output fell 0.3 percent from July, when it declined a revised 0.2 percent, the Office for National Statistics said today in London. The median forecast of 24 economists in a Bloomberg News survey was for manufacturing to fall 0.2 percent.

Corn and soybean futures posted their biggest gains in more than a year on signs that a plunge in prices last month is increasing demand for supplies from the U.S., the world’s largest grower and exporter.

The MSCI Emerging Markets Index climbed 1.2 percent, driving the benchmark index to its steepest five-day gain since 2009. The Hang Seng China Enterprise Index of Chinese companies traded in Hong Kong jumped 4.4 percent after the Chinese state investment fund bought shares in four banks. The Taiex Index surged 2.6 percent after a holiday in Taiwan yesterday, while South Korea’s Kospi Index climbed 1.6 percent to a three-week high. Russia’s Micex Index slid 1.2 percent after jumping 9.1 percent in the past three sessions.

--With assistance from Daniel Tilles, Michael Shanahan, Jason Webb, Andrew Rummer and Claudia Carpenter in London, Rita Nazareth and Christine Harper in New York and Cecile Vannucci in Amsterdam. Editors: Michael P. Regan, Jeff Sutherland

To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Michael P. Regan in New York at mregan12@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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