US bond yields fall from 2-year peaks; Wall Street rebounds

New York: US bond yields retreated from two-year highs on Tuesday on revived safe-haven bids as prices on most world stock exchanges fell to the lowest level in over a month on concerns that less US monetary stimulus will hamper global growth.

add_main_imageWall Street stocks bucked the downdraft in global equities, with the Standard and Poor’s 500 index rebounding from a four-day losing streak, its longest so far this year.

The dollar fell against major currencies, hitting a six-month low against the euro on uncertainty whether the US Federal Reserve will reduce its bond purchases, though the weaker US currency helped steady gold prices.NextMAds

Speculation whether the Fed might decide to shrink its bond purchases at its policy meeting next month sent oil prices lower before they recovered somewhat on news of fighting in Libya, which raised fears about oil exports from the Middle East.

“The ongoing meltdown in regional currencies is starting to negatively influence all risk assets and, for the moment, is helping create a bid for the Treasury market,” said John Briggs, US rate strategist at RBS Securities in Stamford, Connecticut.

The Federal Open Market Committee, the US central bank’s policy-setting group, will release the record of its 30-31 July meeting on Wednesday. Traders anticipate the minutes will contain clues on whether the Fed is on track to reduce its $85 billion monthly purchases of US bonds at its 17-18 September meeting.

Anxiety that US policymakers would dial back the Fed’s third round of quantitative easing, or QE3, has been accompanied by worries the Fed is looking to raise short-term interest rates, even though Fed officials have assured markets that would not happen for a long time.

The yield on 10-year Treasury notes fell to 2.834%, down 6 basis points from late on Monday, when it touched 2.90%, a level not seen since late July 2011.

Treasury yields are benchmarks for domestic mortgage rates and other long-term borrowing costs. Some economists have cautioned that the surge in yields since May would slow the housing recovery, auto sales and other rate-sensitive sectors in the world’s largest economy.sixthMAds

German government bonds, Europe’s equivalent benchmark, moved in lock step with . yields, easing to 1.839% after topping 1.924% on Monday. That was the highest level since March 2012.

The spike in Treasury yields has exerted downward pressure on stocks since last week.

Wall Street stocks halted their longest losing streak in 2013 as major retailers reported positive profits and outlooks, signalling resilience among US consumers who are dealing with meager wage growth and higher taxes this year.

“We got some better news from the specialty retail sector. That perked stocks up a bit, showing the American consumer is not dead,” said Jack Ablin, chief investment officer at BMO Private Bank in Chicago.

Electronics retailer Best Buy Co’s shares jumped 13% to $34.80, while department store operator J.C. Penney Co gained 6% at $14.01.

The Dow Jones industrial average closed down 7.75 points, or 0.05%, at 15,002.99. The Standard and Poor’s 500 Index finished up 6.29 points, or 0.38%, at 1,652.35. The Nasdaq Composite Index ended up 24.50 points, or 0.68%, at 3,613.59.

Europe’s top shares ended down 0.8% at 1,214.78 after hitting their lowest level in more than two weeks, while emerging stocks fell 1.26% to 932.92 to hit a six-week low, though both indexes had recovered slightly from their session lows.

Tokyo’s Nikkei index fell 2.6%.

Broad equity losses weighed down the MSCI world share index. It was down 0.2% at 370.20 after touching its lowest since 11 July before Wall Street’s gains helped pare much of its initial decline.

Dollar slips, commodities recover

With lingering uncertainty about whether the Fed would cut stimulus soon, the dollar index, which measures the greenback against a basket of currencies, fell 0.4% after touching its lowest level in more than two months.

The euro strengthened 0.65% versus the dollar at $1.3422, below its six-month high of $1.3452 set earlier, while the dollar fell 0.39% against the Japanese yen at ¥97.17.

If the Fed signals it will scale back QE3 later this year, the dollar will likely strengthen because fewer bond purchases would lift US yields, raising the appeal of US investments.

In commodities trade, copper futures in London rose 0.23% to $7,322.50 a tonne, erasing early losses.

Spot gold prices rose 0.46% to $1,371.76 per ounce, hovering near a two-month high set on Monday.

Brent crude prices rebounded from an early decline, closing up 25 cents or 0.23% at $110.15 a barrel, pressured by the Fed speculation but supported by the loss of Libya’s oil exports as well as concerns that continuing unrest in Egypt could spread and interfere with supply. US oil for October delivery was off $1.71, or 1.6%, at $105.15. Reuters