While you were sleeping: Bond bulls on the run

Thursday 23rd September 2010

Equities on Wall Street declined a second day as investors bought US Treasuries in anticipation of the Federal Reserve buying more government debt to prop up the economy.

In late trading, the Dow Jones Industrial Average slid 0.25%, the S&P 500 declined 0.54% and the Nasdaq Composite Index dropped 0.89%.

The benchmark 10-year note yield dropped 6 basis points, or 0.06 percentage point, to 2.52% in early afternoon trade in New York, according to BGCantor Market Data.

“There is an underlying bid in the market as the bull trend in Treasuries remains intact,” Martin Mitchell, head government bond trader in Baltimore at Stifel Nicolaus & Co., a brokerage firm, told Bloomberg News.

“The Fed has tipped their hand that they are likely to initiate a larger-scale asset-purchase program in the future. If the Fed becomes a larger buyer, the Treasury market can only go higher.”

The eighth consecutive drop in US home prices, declining 3.3% in July from a year earlier, compounded concern about the economic recovery.

Home prices fell 0.5% from June, the Federal Housing Finance Agency in Washington said in a report today.

Reforming the US mortgage market was the biggest single element missing from financial regulatory reform, said Paul Volcker, special adviser to President Barack Obama, today. The former Fed chairman said the mortgage industry was dysfunctional.

Volcker told a forum sponsored by the International Economic Alliance in New York that he would want to avoid a "hybrid" institution that was "private when things are going well and public when things are going badly".

Companies disappointed. Adobe Systems plunged 19% after estimating sales that fell short of analysts’ forecasts, and PMC-Sierra dropped 7.6% after it reduced its third-quarter revenue forecast.

And even eBay Inc fell 3.5% after it eliminated the likelihood that third-quarter profit would beat analyst expectations.

The benchmark Stoxx Europe 600 Index fell 1.4% to 261.19.

The VIX, or Wall Street’s fear gauge, rose 1.75% to 22.74.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.69% to 79.88. The US dollar fell to a five-month low against the euro.

Japan’s central bank was monitoring the yen’s strength, which was an impediment to the nation’s economic recovery, a Bank of Japan board member, Ryuzo Miyao, said today. He also said the bank planned to take appropriate credit-easing steps if needed. Japanese markets are closed tomorrow for a public holiday.

Gold hit record highs for a fifth straight session after the Federal Reserve signaled it stood ready to inject fresh cash into the economy.

Silver also advanced to a 2-1/2 year high, approaching its highest level in 30 years.

Spot gold climbed to a record US$1,296.10 an ounce and was bid at US$1,293.75 an ounce at 1357 GMT.

Businesswire.co.nz

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