While you were sleeping: Demand for Treasuries, bank downgrades

Wednesday 12th August 2009

US Treasuries rose after so-called indirect bidders, which include foreign central banks, scooped up a record amount of three-year notes at auction, soothing concern the market is overloaded with government debt.

The notes drew a lower-than-expected yield of 1.780% in the sale of a record US$37 billion of the notes. In the market, three-year Treasuries fell four basis points to 1.74%. The yield on 10-year Treasuries fell nine basis points to 3.69%.

Indirect bidders bought 62.5% of the notes at the auction, up from 54% from the last sale in July. The bid to cover ratio, a measure of demand at the sales, rose to 2.89.

The government will offer to sell US$23 billion of 10-year notes and US$15 billion of 30-year bonds this week.

Federal Reserve policymakers began their two-day meeting at which they are expected to keep the target interest rate close to zero.

Shares on Wall Street fell, led by banks, after Rochdale Securities analyst Richard Bove said lenders are trading in “fumes.”

Bank earnings won’t improve this year and many lenders “will show losses," Bove said, recommending investors take profits on the stocks after recent gains.

Shares also fell after figures showed a bigger-than-expected decline in wholesale inventories. The Dow Jones Industrial Average slipped 1% to 9241.45 and the Standard & Poor’s 500 fell 1.3% to 994.35. The Nasdaq Composite declined 1.1% to 1969.73.

Bank of America led the Dow lower, dropping 5% to US$15.85. JPMorgan Chase fell 3.4% to US$41.24. MBIA Inc., the biggest bond insurer, dropped 13% to US$5.39 after analysts at JPMorgan Chase cut the stock to ‘underweight.’

A report from the Congressional Oversight Panel said toxic loans and securities will continue to dog lenders.

A Labor Department report showed non-farm productivity rose at an annual rate of 6.4%, the biggest since the third quarter of 2003. Commerce Department figures showed US wholesalers reduced their inventory levels for a 10th straight month in July, suggesting they’re not yet ready to bet on economic recovery.

Inventories fell 1.7% to a two-year low in June while the inventory-to-sales ratio fell to 1.26 months' worth.

Zillow.com reported that almost a quarter of US mortgage holders owed more than their homes were worth in the second quarter, with that figure set to rise to as much as 30% this year as job losses mount and property prices fall. The estimated median value of a single-family home fell 12% to US$186,500.

The yen rose as concern financial companies still face a rocky road drove stocks lower and lifted demand for Japan’s currency as a refuge. The yen also gained after figures yesterday showed China’s exports dropped 23% last month from a year earlier while new loans tumbled.

The yen climbed to 135.79 per euro from 137.36 and strengthened to 95.92 per dollar from 97.15. The euro traded at $1.4154 from $1.4140.

Copper futures for September delivery fell 1% to US$2.744 a pound on the New York Mercantile Exchange.

Crude oil fell amid after the US wholesale business inventories data stoked concern recovery from the economic slump will be slow and the government reduced its forecast for global oil demand.

US crude fell 98 cents to US$69.62 a barrel while Brent crude declined US$1 to US$72.50 a barrel.

The US Energy Information Administration said oil consumption would fall by 1.71 million barrels per day this year, up from its previous estimate of 1.56 million barrels.

The Organisation of the Petroleum Exporting Countries also forecast weaker demand for crude oil next year.

"In light of weakening fundamentals, the sustainability of current prices will mainly depend on clearer signs of improvement in the global economy," OPEC said in a report.

Bernard Madoff's deputy, Frank DiPascali, was charged with 10 crimes of conspiracy and securities fraud and the US Department of Justice expects him to plead guilty.

In Europe, the Dow Jones Stoxx 600 Index fell 1.4% to 226.35 on concern the drop in Chinese exports bodes badly for the region’s economic recovery and as investors deemed equities expensive after their recent rally.

Lloyds Banking Group fell 7.1% after the Financial Times said the UK government may not support the lender’s plans to raise 15 billion pounds in a rights offer.

Danske Bank fell 2.1% after unexpectedly reporting a loss.

The UK’s FTSE 100 fell 1.1% to 4671.34 and Germany’s DAX 30 declined 2.4% to 5285.81. France’s CAC 40 fell 1.4% to 3456.18.

Businesswire.co.nz

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