Bloomberg News

Treasuries Fall as Stocks End Little Changed, Oil Drops

November 20, 2012

French Swaps Rise on Downgrade as Bonds, European Banks Decline

Moody’s cut France to Aa1 from Aaa and kept a negative outlook for Europe’s second-largest economy. Photographer: Balint Porneczi/Bloomberg

U.S. Treasuries sank amid growth in housing starts and speculation that lawmakers will reach an agreement on the budget, while stocks ended little changed as Hewlett-Packard Co. (HPQ:US) led technology shares lower. Oil sank.

Ten-year U.S. note yields rose five basis points to 1.67 percent at 4 p.m. in New York, a second straight increase. The Standard & Poor’s 500 Index closed up less than 0.1 percent at 1,387.82 after retreating as much as 0.7 percent. France’s 10-year bond yields climbed eight basis points to 2.15 percent after Moody’s Investors Service cut the nation’s credit rating. Oil plunged on optimism that fighting will subside between Israel and Palestinian groups.

Federal Reserve Chairman Ben S. Bernanke said an agreement on ways to reduce long-term federal budget deficits would remove an impediment to growth, while failure to avoid the so-called fiscal cliff would pose a “substantial threat” to the recovery. The S&P 500 has fallen as much as 5.3 percent since the Nov. 6 election set up a budget showdown between President Barack Obama and the Republican-controlled House.

“A majority of traders are taking chips off the table,” said Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets in New York. “If they reach an agreement, Treasuries will go up in yields.”

Two-year Treasury yields increased one basis point to 0.25 percent, while rates on 30-year bonds climbed six basis points to 2.82 percent.

Homebuilders Rally

U.S. benchmark equity indexes fluctuated throughout the day. An S&P gauge of 11 homebuilders jumped 3.3 percent, with PulteGroup Inc. and Lennar Corp. pacing gains. Housing starts rose 3.6 percent to a 894,000 annual rate, the fastest since July 2008 and exceeding all estimates in a Bloomberg survey, Commerce Department figures showed.

The S&P 500 surged 2 percent yesterday, the most in two months, amid optimism that U.S. lawmakers will reach an agreement to avoid the fiscal cliff of $607 billion in spending cuts and tax increases will go into effect next year if a budget deal is not reached.

Indexes of health-care, financial and consumer- discretionary companies climbed more than 0.5 percent to lead gains in six of the 10 main industry groups in the S&P 500, while technology and energy shares fell the most.

Best Buy Co., the electronics retailer being evaluated for a takeover by its founder, sank 13 percent after posting a $10 million quarterly loss as sales at established stores fell more than expected. Hewlett-Packard tumbled 12 percent after taking a $8.8 billion impairment on last year’s acquisition of Autonomy Corp., the British software maker that it accuses of falsifying finances.

Intel Corp. dropped 3.6 percent after UBS AG cut its rating for the largest chipmaker.

‘Structural Rigidities’

The 17-nation euro was little changed at $1.2818, while the additional yield investors demand to hold French 10-year bonds instead of benchmark German bunds widened 1.6 basis points to 73 basis points.

“France’s fiscal outlook is uncertain as a result of its deteriorating economic prospects, both in the short term due to subdued domestic and external demand” and “structural rigidities” in the longer term, Moody’s said. France was cut one level to AA+ from AAA by S&P on Jan. 13.

The yield on France’s two-year notes jumped four basis points to 0.15 percent. Moody’s cut France to Aa1 from Aaa and kept a negative outlook for Europe’s second-largest economy.

“The downgrade raises concerns about the structure of the euro zone and adds more of a burden on to the shoulders of German sovereign creditworthiness,” said John Wraith, a fixed- income strategist at Bank of America Merrill Lynch in London. “It’s another sign that things continue to deteriorate in Europe.”

European Markets

The Stoxx Europe 600 Index increased 0.3 percent, with travel and leisure companies leading gains in 16 of 19 industries. EasyJet Plc (EZJ) rallied 6.1 percent as the discount airline doubled its dividend after boosting full-year profit 28 percent

Banks had the biggest decline in the Stoxx 600 (SXXP), falling 0.5 percent as a group. Credit Suisse Group AG, the second-biggest Swiss bank, slid 1.7 percent after saying it will reorganize its investment bank and merge asset management with the private bank to cut costs.

Euro-area finance ministers met today to try to plug a hole in Greece’s public accounts. Recycling European Central Bank returns on Greek bonds, charging the country lower interest rates and extending repayment deadlines are among the options under consideration today for filling a new gap in Greece’s public accounts.

Europe Meetings

Officials said today’s meeting, starting at 5 p.m. in Brussels, won’t make a final decision to release the next tranche of aid to Greece, partly because parliaments in Germany, the Netherlands and Finland have yet to weigh in. Greek 10-year bonds rose for an eighth day, pushing the yield 13 basis points lower to 17.099 percent.

Crude for January delivery declined 2.8 percent to $86.75 a barrel on the New York Mercantile Exchange after Hamas said a draft accord for a cease-fire that would end fighting between Israel and Palestinian groups in the Gaza Strip is almost ready. Futures climbed 3 percent yesterday as Israeli ground forces honed preparations to enter the Gaza Strip for the first time in almost four years.

The MSCI Emerging Markets Index added 0.2 percent, with technology companies climbing 1.4 percent as a group to lead gains.

Olam International Ltd. (OLAM), the commodities trader part owned by Singapore’s state-owned investment company, tumbled 7.5 percent in the city-state after short-seller Carson Block questioned the company’s accounting methods. Olam “strongly rejects the assertions,” the company said in a statement.

The yield on Australia’s 10-year bonds rose seven basis points to 3.16 percent at the close of trading in Sydney. Central bank Governor Glenn Stevens said it was prudent to keep the nation’s benchmark interest rate unchanged “for the moment” as policy makers monitor the impact of previous reductions on the economy.

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Susanne Walker in New York at swalker33@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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