While you were sleeping: Treasuries drop; Obama's $3.55t budget

Friday 8th May 2009

US Treasuries fell as the government was forced to offer higher-than-expected yields in the sale to US$14 billion of the debt, raising the prospects of higher borrowing costs as the Obama administration advances a record US$3.55 trillion budget.

The auction’s bid-to-cover ratio, a measure of demand that compares total bids with the amount of debt on offer, was 2.14, down from the average of 2.24 at the past 10 sales of the bonds, according to Bloomberg.

The sale drew a yield of 4.288%. The debt yielded 3.64% at the March 12 auction. The yield on 30-year Treasuries surged 18 basis points to 4.28%. The yield on 10-year notes rose 13 basis points to 3.32%.

President Barack Obama sought a US$81 billion increase in spending for domestic initiatives while trimming US$17 billion of programs including a preferential tax regime for oil and gas companies. The U.S. may be forced to raise a record US$3.25 trillion to fund Obama’s US$3.55 trillion budget, the biggest in history.

Stocks fell from a four-month high on Wall Street led by technology stocks and as tepid demand at the government bond auction weighed on sentiment.

The Nasdaq Composite sank 2.4% to 1716.24. Hewlett Packard fell 5% to US$34.53, IBM declined 1.9% to US$102.59 and Intel dropped 2.2% to US$15.77.

The Dow Jones Industrial Average fell 1.2% to 8409.85 and the Standard & Poor’s 500 fell 1.3% to 907.39. Aluminium producer Alcoa slid 6.2% to US$9.85 and Caterpillar fell 5.2% to US$37.92. Bank of America climbed 6.5% to US$13.51.

Symantec Corp., the anti-virus software maker, the biggest maker of security software, tumbled 15% to US$14.99 after forecasting weaker-than-expected sales.

General Motors dropped 3.6% to US$1.60 after posting a first-quarter loss of US$5.98 billion, stoking expectations it will be forced into bankruptcy after the June 1 deadline to restructure. Sales slumped 47% to US$22.4 billion and the automaker burned through US$10.2 billion of cash in the first quarter.

Labor Department figures showed that fewer Americans filed claims for unemployment benefits last week, stoking optimism companies are easing back on job cuts.

Applications fell by 34,000 to 601,000 last week, the lowest since January, according to the Labor Department. Productivity rose at an annual rate of 0.8% in the first quarter after falling 0.6% in the fourth quarter. The data comes before the non-farm payroll numbers due Friday in the US, which are expected to show the US economy shed about 600,000 workers in April, pushing the jobless rate to 8.9%.

The European Central Bank has agreed to buy 60 billion euros of bonds as it broadens the range of tools employed to resurrect the region’s economy. The announcement by ECB President Jean- Claude Trichet signals resolution at a central bank whose officials have been at odds about the next steps in tacking recession, with the benchmark interest rate already low.

Tirchet said the 1% benchmark rate is appropriate.

The euro strengthened against the US dollar and the yen after Trichet’s comments. The regional currency gained to $1.3381 from $1.3334 and rose to 132.49 yen from 131.10. The dollar rose to 99.02 yen from 98.31.

Copper had the biggest gain in a month as the jobs data stoked optimism the global economic slump has reached its nadir. Copper futures for July delivery gained 5%, to US$2.187 a pound on the New York Mercantile Exchange.

Gold futures for June delivery edged up US$911 an ounce in New York.

Crude oil was little changed near US$56 a barrel.

Shares in Europe snapped a five-day rally after UK lenders Barclays Plc and Lloyds Banking Group Plc said bad loans may jump this year.

The Dow Jones Stoxx 600 Index fell 0.8% to 206.29.

Barclays declined 4.3% and Lloyds slid 14%. Barclays said provisions for bad loans may surge 50% this year, while bad debt at Lloyds may rise 50%.

Porsche SE fell 18% after its family shareholders agreed to a merger with Volkswagen AG. Anheuser-Busch InBev, the world’s biggest brewer, rose 2.3% after reporting a surge in first-quarter profit that exceeded expectations.

The UK’s FTSE 100 Index was little changed at 4,398.68 after the Bank of England held its benchmark interest rate unchanged at 0.5% while almost doubling its asset purchase program to 125 billion pounds. France’s CAC 40 fell 1% to 3251.52 and Germany’s DAX Index dropped 1.6% to 4804.10.

Businesswire.co.nz

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