Treasuries Rise as Euro Falls; Most U.S. Stocks Retreat

Treasuries rose for a second day amid speculation economic growth will fail to fuel employment, while European stocks and the euro fell on concern leaders will struggle to tame the debt crisis. Most U.S. stocks retreated.
Ten-year U.S. Treasury yields declined five basis points to 1.79 percent at 2:28 p.m. in New York. The Standard & Poor’s 500 Index declined 0.2 percent to 1,457.89 as three stocks declined for every two rising in the U.S. The Stoxx Europe 600 Index decreased 0.4 percent. The euro slid 0.7 percent to $1.3032, weakening for a second day after reaching a four-month high last week. The S&P GSCI Index of commodities lost 1.3 percent.

A visitor uses his mobile phone as he sits beneath share price information displayed on electronic displays inside the Madrid Stock Exchange in Madrid. Photographer: Angel Navarrete/Bloomberg

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Sept. 18 (Bloomberg) -- Alan Ruskin, global head of G-10 foreign-exchange strategy at Deutsche Bank AG, talks about Federal Reserve policy and the outlook for the euro. Ruskin speaks with Tom Keene and Scarlet Fu on Bloomberg Television's "Surveillance." (Source: Bloomberg)

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Sept. 18 (Bloomberg) -- Brian Barry, an analyst at Investec Bank Plc, talks about the outlook for Spanish bonds. He speaks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)

Treasuries have recouped more than half the losses triggered when Federal Reserve policy makers announced more stimulus measures last week. International demand for U.S. financial assets rose more than forecast in July as investors sought shelter from Europe’s troubles. FedEx Corp., which is considered an economic bellwether because it operates the world’s largest cargo airline, reduced its profit outlook today amid slowing demand.
“The Fed is going to be looking to keep yields low no matter what,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “If yields go back up, a lot of people think the Fed will come back in,” he said. “There continues to be geopolitical concerns adding a bid to the market.”
Thirty-year Treasury bond yields decreased four basis points to 3.00 percent, while rates on two-year notes lost less than one basis point to 0.25 percent.

Highest Since 2007

The S&P 500 retreated after closing last week at the highest level since December 2007. FedEx slipped 2.7 percent after forecasting second-quarter earnings of $1.30 to $1.45 a share, below the $1.67 average from 23 estimates compiled by Bloomberg. Advanced Micro Devices Inc. sank 9.2 percent after announcing its chief financial officer will resign. Apple Inc. was little changed after earlier surpassing $700 for the first time in intraday trading.
Commodity, financial and consumer-discretionary stocks led declines among the 10 main groups in the S&P 500, while consumer-staples, health-care and telephone companies rose the most. The S&P 500 has climbed for three straight months and is up 16 percent this year.
“The past week of trading sessions have been very much to the positive side, so it may be time for a little pause,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in a phone interview.

Puts Decline

Bearish options on the S&P 500 have dropped to the cheapest level in more than three years after the Fed announced a third round of bond purchases to stimulate economic growth.
Puts protecting against a 10 percent decline in the S&P 500 cost 7 points more than calls betting on a 10 percent increase, according to one-month data compiled by Bloomberg. The price relationship known as skew fell to 6.4 on Sept. 14, the lowest level since April 2009. The S&P 500 remains close to a five-year high after rallying 16 percent this year.
The Stoxx Europe 600 Index slipped 0.4 percent. Renault SA and Intesa Sanpaolo SpA led gauges of automakers and banks lower. Akzo Nobel NV sank 5.5 percent as Chief Executive Officer Ton Buechner said he will take temporary leave after suffering fatigue less than six months after taking the post at the world’s largest paintmaker.
The euro slid against all 16 major peers, weakening for the first time in six days against the yen. Australia’s dollar dropped against 12 of 16 major counterparts after minutes of the Reserve Bank’s September meeting showed officials believed the currency’s strength was a risk to the economy.

Spanish Auction

Spain sold 4.6 billion euros ($6 billion) of bills, more than its maximum target, as borrowing costs declined at its first auction since the ECB proposed buying sovereign debt. The yield on Spain’s 10-year notes fell eight basis points to 5.90 percent, after climbing as high as 6.06 percent. The cost of insuring Spanish debt rose for a second day, jumping to a one- week high of 373 basis points.
Rising yields may force Spain to seek assistance and submit to European Central Bank conditions for aid, ECB Governing Council member Luc Coene said yesterday. The country will consider a rescue to cut borrowing costs if the conditions are acceptable, Spanish Deputy Prime Minister Soraya Saenz de Santamaria said today.

No ‘New Sacrifices’

“If we get our borrowing costs to fall, so we pay less, and if we manage to do that by doing reforms and without new sacrifices,” a rescue may be an option, Saenz said in an interview with Telecinco. “Paying these interest costs is like throwing money out of the window,” Saenz said.
Germany’s 10-year bond yield dropped four basis points to 1.64 percent as investors sought the safest fixed-income assets. The yield premium, or spread, that investors demand to hold Spanish debt over benchmark German bunds slipped four basis points to 426 basis points, or 4.26 percentage points, compared with a five-month low of 400 points reached last week.
If “markets see that Spain will not” ask for aid, “then it will not last long before spreads will rise again, and then Spain will be somewhat forced to come back on its decision and submit to the conditionality program,” said ECB’s Coene, who is governor of the Belgian central bank.
German investor confidence improved for the first time in five months in September after the ECB pledged to buy government bonds to stem the debt crisis, the ZEW Center for European Economic Research said today.
Sugar, cocoa, natural gas and nickel lost at least 2 percent to help lead the S&P GSCI Index lower.
New York-traded oil slipped 1.2 percent to $95.51 a barrel after falling $2.38, or 2.4 percent, yesterday. Prices tumbled more than $3 in less than a minute yesterday, leaving traders and analysts perplexed about the cause.

Emerging Markets

The MSCI Emerging Markets Index (MXEF) lost 0.5 percent. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong slipped 1 percent and Taiwan’s Taiex Index sank 0.4 percent. India’s Sensex Index dropped 0.3 percent.
The Shanghai Composite Index fell 0.9 percent amid escalating tensions with Japan, extending a 2.1 percent slide yesterday for its worst two-day loss since March. The nations’ worst diplomatic crisis since 2005 threatens trade ties of more than $340 billion.
“There are still a number of areas of concern,” Tim Schroeders, who helps manage about $1 billion at Pengana Capital Ltd. in Melbourne, said in a telephone interview. “Investors will become increasingly nervous if a policy response doesn’t materialize in China. There are still tensions between European partners in terms of what shape and form the ultimate rescue takes. The devil lies in the detail.”