While you were sleeping: Treasuries rally after sale; yen gains, G-8 outlook

Thursday 9th July 2009

US Treasuries rallied after an auction of US$19 billion of 10-year notes drew a record level of bids, reflecting a jump in purchases by investors such as foreign central banks, amid doubts economic growth will return soon.

Indirect bidders, which include foreign central banks, bought 43.9% of the notes, up from 34.2% purchased in last month’s auction. The sale drew a yield of 3.365% and investors bid for 3.28 times the amount on offer, a record bid-to-cover ratio.

The yield on 10-year Treasuries tumbled 15 basis points to 3.31% after the auction, the third of four this week totaling US$73 billion. The yield on 30-year Treasuries fell 12 basis points to 4.18%.

The yen jumped against the US dollar and strengthened against the euro on speculation US companies will post weaker earnings for the second quarter, underlying the ongoing malaise in the global economy.

Group of Eight leaders meeting in Italy said “significant risks remain to economic and financial stability” and it is too early to end fiscal and monetary policy measures aimed at slowing the recession.

The yen surged to 92.71 against the dollar from 94.89 and earlier strengthened to as much as 91.81 per dollar, the highest in almost five months. Japan’s currency gained to 128.69 against the euro from 132.13, after touching as strong as 127.02. The euro traded at $1.3877 from $1.3924.

The International Monetary Fund’s latest World Economic Outlook predicts the global economy will shrink 1.4% this year, deeper than its previous forecast of a 1.3% contraction, before growing 2.5% in 2010, stronger than its earlier 1.9% estimate.

The G-8 nations, the US, Japan, Germany, the UK, France, Italy, Canada and Russia, were “of the view that the crisis is a long way from being over,” said German Chancellor Angela Merkel, Reuters reported. “With luck, we have reached the bottom,” she said.

No mention was made in the official statement of China’s call for debate on an alternative reserve currency to reduce the dominance of the greenback, which the world’s fourth-largest nation says has worsened the global economic slump. Some 70% of China’s foreign currency reserves are in dollars.

Efforts to gain consensus in climate change faltered when the 17 members of the Major Economies Forum failed to resolve differences between the US, Europe and emerging economies such as China on halving emissions by 2050.

Reuters reported that a draft statement from the MEF omitted reference to the goal, opting instead for agreement on limiting the average increase in the global temperature to two degrees Celsius since pre-industrial times. That cap also gained support from the G-8.

Efforts to gain consensus were also thwarted as Chinese President Hu Jintao returned home amid ethnic unrest in the north west of China that has killed 156 people.

Aluminium producer Alcoa Inc. kicks of earnings reports from companies on the Dow Jones Industrial Average today in the US and is expected to post its third straight quarterly loss. Its shares rose 0.5% to US$9.46.

The Dow erased its declines at the close, climbing 0.2% to 8178.41, led by defensive stocks such as consumer product and drug companies. Johnson & Johnson advancing 1.5% to US$57.08, Merck climbed 1.5% to US$28.08 and Procter & Gamble gained 1.4% to US$52.64.

General Electric led decliners on the Dow, falling 1.7% to US$10.71, while Bank of America slid 2.6% to US$11.84 and Intel fell 1.9% to US$15.94. Exxon Mobil dropped 0.5% to US$66.26 as crude oil extended its decline.

The Standard & Poor’s 500 Index fell 0.2% to 879.56 and the Nasdaq Composite rose 0.1% to 1747.17.

US consumer borrowing fell for the fourth month in a row in May amid tighter credit conditions and surging unemployment.

Consumer credit declined at an annual rate of 1.5% to US$2.52 trillion, according to a Federal Reserve report, extending the longest slide since 1991.

Copper declined on concern recovery in the global economy is further off than hoped.

Copper for September delivery fell 3% to US$2.159 a pound on the New York Mercantile Exchange.

Gold futures for August delivery fell 2.1% to US$909.30 an ounce in New York.

Crude oil extended its slide for a sixth day in New York after US Energy Department figures showed stockpiles of gasoline rose a higher-than-expected 1.9 million barrels to 213.1 million last week.

Crude oil for August delivery tumbled 4.5% to US$60.12 a barrel on the New York Mercantile Exchange.

Stocks in Europe declined amid concern second-quarter earnings will paint a bleak picture of corporate profitability. The Dow Jones Stoxx 600 Index fell 1.1% to 198.03.

Holcim, the world’s second-largest cement maker, dropped 4.5% after predicting “difficult” trading in 2009. Xstrata Plc sank 3.8% as prices of metals fell.

ArcelorMittal fell 4.9% after the world’s biggest steelmaker said it’s in advanced talks with its banks to ease a covenant on leverage. France’s CAC 40 fell 1.3% to 3009.71 and Germany’s DAX 30 declined 0.6% to 4572.65. The UK’s FTSE 100 Index fell 1.1% to 4140.23.

Businesswire.co.nz

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