While you were sleeping: Treasuries gain after auction; Bernanke on defensive

Friday 26th June 2009

US Treasuries rallied after the government completed its third auction of debt this week, drawing more demand than expected, and as figures showed an increase in Americans seeking for unemployment benefits.

Indirect bidders, which include foreign central banks, scooped up 67.2% of the US$27 billion of seven-year notes on offer, more than double the amount they bought in last month’s sale. The latest auction drew a lower-than-expected yield of 3.329%. It was the largest sale of notes of that maturity since regular sales began in 1981.

The yield on 10-year notes tumbled 16 basis points to 3.54% while the 30-year Treasury yield fell 11 basis points to 4.32%.The bid-to-cover ratio, which compares total bids with the amount of securities offered, was 2.82 compared to 2.26 in last month’s sale.

Federal Reserve Chairman Ben Bernanke denied that he had threatened to fire the management of Bank of America unless it walked away from a planned merger with Merrill Lynch & Co.

Bernanke, whose term as Fed chairman expires in January, was pressed on whether he pressured Bank of America chief executive Kenneth Lewis to proceed with the deal in December despite evidence of Merrill’s worsening financial position.

"I did not tell Bank of America's management that the Federal Reserve would take action against the board or management," Bernanke said. The central bank did nothing that was “beyond the law or unethical” and didn’t direct bank of America to withhold any information from the public about Merrill’s position, he said.

The intense scrutiny of Bernanke comes as lawmakers debate the Obama administration’s plan for a regulatory reforms that would bolster the Fed’s powers over the financial system.

US stocks rallied, with home builder Lennar Corp. leading gains on the Standard & Poor’s 500 after reporting an increase in new sales and homewares retailer Bed Bath & Beyond rising after posting an increase in profit.

The S&P 500 rose 2.1% to 920.26 and the Dow Jones Industrial Average climbed 2.1% to 8472.40. The Nasdaq Composite advanced 2.1% to 1829.54.

Lennar, which notes the sales pick-up while posting a quarterly loss, rose 18% to US$9.19 and Bed Bath & Beyond climbed 9.5% to US$31.08 after reporting an increase in earnings after it slashed costs to meet a drop in demand.

American Express gained 6.6% to US$24.44, leading the Dow higher.

The US dollar and yen weakened as the rebound in stocks stoked optimism and demand for higher-yielding assets.

The dollar fell to $1.3989 from $1.3930 and strengthened to 95.85 yen from 95.66. The yen weakened to 134.09 against the euro.

US Labor Department figures showed the number of US workers filing new claims for unemployment benefits rose by 15,000 last week to 627,000, seasonally adjusted, more than expected.

Gross domestic product in the first quarter shrank at a 5.5% annual rate, according to final government figures, less than its first estimate of 6.1%.

Still, consumer spending, which makes up about two thirds of the US economy, rose by 1.4%, milder than the 1.5% initial estimate a month ago.

Exports slid 30.6%, greater than the initial 28.7% estimate and the steepest decline in 40 years. Imports fell 36.4%.Business investment declined by a record 37.3% and home building fell 38.8%.

Corporate profits rose 1.4% in the first quarter, better than the initial estimate of 1.1%.

Crude oil climbed back up above $69 a barrel after militants attacked a pipeline to an export terminal in Nigeria that is owned by Royal Dutch Shell Plc.

The Movement for the Emancipation of the Niger Delta claimed responsibility for the attack, part of an increased campaign in the Niger River delta.

Crude oil for August delivery gained to US$69.41 a barrel on the New York Mercantile Exchange.

Copper rose to its highest level in a week after the final reading on US GDP showed a milder contraction in the first quarter. Copper futures for September delivery rose 2.1% to US$2.33 a pound on the New York Mercantile Exchange.

Gold futures for August delivery edged up 0.5% to US$939.50 an ounce in New York.

Texas billionaire Allen Stanford pleaded not guilty to charges that he operated a US$7 billion Ponzi scheme. Stanford, who was also famed as a sports promoter, has been in custody since June 18 and has been indicted on 21 counts of conspiracy, fraud and obstruction of justice.

Stanford arrest follows the case of Bernard Madoff, who pleaded guilty to a US$65 billion Ponzi scheme.

Stocks in Europe fell after the International Monetary Fund said Irish banks may face losses of as much as US$49 billion through 2010 due to the “unprecedented economic correction.”

The Dow Jones Stoxx 600 Index fell 0.8% to 204.66.

The Dow Jones Stoxx 600 Index fell 0.8% to 204.66. The UK’s FTSE 100 slipped 0.6% to 4252.57 and France’s CAC 40 fell 0.7% to 3163.10. Germany’s DAX 30 dropped o.7% to 4800.56.

Bank of Ireland tumbled 5.8% and Allied Irish Banks fell 4.4%.Credit Agricole declined 3.9% after analysts at Cheuvreux and Kepler Capital Markets cut their profit estimates for the French bank and lowered their rating to ‘hold’ from ‘buy.’

Germany’s BASF fell 2.5% after announcing plans to close a polystyrene plant to cut plastic production in Europe by 15%.

Businesswire.co.nz

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