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Policy: Economy

Treasuries, industrial metals drop; US stocks little changed

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Treasury,Economy,Bloomberg News,Financial Markets

Treasuries declined, sending 10-year yields to the highest since September, while the dollar strengthened as an improving U.S. economy fueled speculation the Federal Reserve will reduce stimulus. U.S. stocks were little changed, industrial metals slid and the Swedish krona weakened.

Yields on 10-year Treasuries climbed as much as four basis points to 2.79 percent, before trimming the advance and trading at 2.76 percent. The dollar approached 100 yen for the first time since Sept. 11, rising against 11 of its 16 major peers. The Standard & Poor’s 500 Index fluctuated near the 1,770 level and the Stoxx Europe 600 Index retreated 0.5 percent at 9:49 a.m. in New York. The krona lost 1.4 percent versus the euro, and the pound slid 0.4 percent per dollar. Copper, lead and zinc dropped at least 0.5 percent.

Treasury yields have jumped about 17 basis points and the dollar gained 1.6 percent versus the yen since the Labor Department’s better-than-forecast U.S. jobs data last week fueled speculation the Federal Reserve will trim stimulus earlier than expected. The Bloomberg U.S. Financial Conditions Index, which combines everything from money-market rates to yields on government and corporate bonds to equity volatility, reached an all-time high.

“People in the market seem to be convinced that the Fed’s tapering will happen sooner rather than later and that’s showing in long-dated Treasury yields,” said Peter Osler, head of interest-rates strategy at broker Marex Spectron Group Ltd. in London. “Economic reports suggested that, unlike in Europe, economic recovery in the U.S. is more solid.”

Accommodation Riskier

Dallas Fed President Richard Fisher, who has said he wouldn’t rule out backing a reduction in bond buying by March, said in a speech in Melbourne today that monetary accommodation “becomes riskier by the day.” His Atlanta and Minneapolis counterparts Dennis Lockhart and Narayana Kocherlakota are also scheduled to speak today.

U.S. government debt is becoming increasingly perilous to options traders who are pushing up the cost to protect against sudden losses by the most in a year.

The cost to lock in fixed-interest rates that are a half- percentage point above 10-year yields is now about 17 percent higher than contracts tied to prevailing rates, according to data compiled by Deutsche Bank AG. The premium for the three- month options has risen from this year’s low of 10 percent in June, signaling growing demand for protection from the risk U.S. borrowing costs will start rising before March. The increase was the biggest since 2012.

The dollar appreciated 0.6 percent to 99.73 yen after reaching 99.80, the highest level since Sept. 13. It slipped 0.2 percent to $1.3434 per euro, while the 17-nation shared currency advanced 0.8 percent versus the yen.

The Swedish krona weakened against all of its 16 major counterparts after the country unexpectedly returned to deflation last month. The pound declined 0.6 percent to $1.5899, the lowest since Oct. 16, after U.K. inflation slowed more than forecast in October.

Germany’s 10-year bund yield rose two basis points to 1.78 percent, the highest since Oct. 24. Italy’s one-year borrowing costs fell to a record of 0.688 percent at a sale of 6.5 billion euros ($8.7 billion) of bills. The yield on 10-year bonds rose two basis points to 4.15 percent.

Stocks Slide

Basic-resource companies and financial-services shares posted the biggest losses in the Stoxx 600, which has climbed 15 percent this year and closed yesterday at the highest since May 2008.

Norsk Hydro ASA slumped 5.8 percent, the most in a year, after Vale SA sold a stake in the aluminum maker. Infineon Technologies AG dropped 5.5 percent after Europe’s second- largest semiconductor maker predicted a decline in profitability. Swiss Life Holding AG rallied 5.5 percent to a five-year high as Switzerland’s biggest life insurer reported increased sales and named a new chief executive officer.

The S&P 500 advanced 0.1 percent yesterday to 1,771.89, near its Oct. 29 record of 1,771.95. News Corp. slid in pre- market trading as the publisher of the Wall Street Journal reported a 2.8 percent decline in first-quarter revenue.

Emerging Markets

The MSCI Emerging Markets Index lost 0.2 percent for a ninth straight decline, its longest slump since 2006. Indonesia’s Jakarta Composite Index dropped 1.4 percent after the central bank unexpectedly raised interest rates. Benchmark gauges in the Czech Republic and India slid at least 1 percent.

The Shanghai Composite Index climbed 0.8 percent while the Hang Seng Index in Hong Kong retreated 0.2 percent before the conclusion of a four-day Communist Party meeting.

China elevated the role of markets in the nation’s economic strategy after President Xi Jinping oversaw a gathering of Communist Party leaders while stopping short for now of unveiling detailed policy shifts.

The nation will make markets “decisive” in allocating resources, according to the communique from the third full meeting, or plenum, of the party’s 18th Central Committee. At the same time, state-owned enterprises will remain “dominant,” indicating limits on rolling back government involvement.

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