World Faces Rising Yields on U.S. Bonds

Sarla Buch
22 May, 2009
New York City

U.S. bond market yields increased as the U.S. government plan to raise $162 billion next week. The yield curve may change if investors do not like the health of the economy as the U.S. prepares to raise $3 trillion in the next eighteen months. Gold stays above $960 and crude oil above $61 a barrel.

[R]5:00 PM New York, 10:00 PM London, 8:00AM Sydney – U.S. bond market yields increased as the U.S. government plan to raise $162 billion next week. The yield curve may change if investors do not like the health of the economy as the U.S. prepares to raise $3 trillion in the next eighteen months. Gold gains.[/R]

Investors are finally waking up to the reality of the U.S. government crowding out private sector in bond market and push interest rates higher.

The prospect of $3 trillion U.S. government bond offering in the next eighteen months is beginning to reach top of investors concerns. If rates rise as the U.S. prepare for the largest ever bond offering, the economy and stock market may be on a rocky path.

The U.S. is planning to raise $162 billion in bond offering next week.

European markets were focused on the euro-dollar relationship and the prospect of stronger euro will lower earnings. More investors are forecasting the loss of top rating for dollar denominated debt. European nations are also running high deficits as economies slow in Germany, Spain, France, Italy and Ireland.

UK first quarter GDP shrink was left unchanged at 1.9%. Manufacturer preferred to liquidate inventories and conserve cash and consumer spending declined. The GDP declined 4.1% from a year ago. UK miners closed higher after Goldman Sachs speculated capacity constraints for copper and iron ore miners.

In Tokyo, investors overlook positive comments from the Bank of Japan after it left its key lending rate unchanged. The prospect of near term downward debt rating for UK and longer term for the U.S. raised worries that higher yen will lower earnings of Japanese exporters.

In Mumbai trading, Infrastructure, construction and petroleum stocks closed higher as investors hope faster economic reforms. Talks of partial deregulation of petrol and diesel prices gained momentum. ITC profit increased 10% and NTPC net surged 58%. Rupee gained against dollar and euro.

Australian stocks declined on the weakness in mining and energy stocks. Gold linked stocks closed higher as gold price increased. The rising national debt in the U.S. and UK added strength to Australian dollar.

North American Markets

Dow Jones Industrial Average decreased 14.81 or 0.2% to a close of 8,277.32, S&P 500 Index declined 1.33 or 0.2% to 887.00, and Nasdaq Composite Index edged lower 3.24 or 0.2% to close at 1,692.01. Toronto TSX Composite Index closed up 50.18 or 0.5% to 9,999.77.

Of the stocks in S&P 500 index, 335 increased, 154 declined and 11 were unchanged.

General Motors led decliners in the S&P 500 index with a loss of 22.9% followed by losses in SLM Corp of 10.3%, in Salesforce.com of 8.7%, in AIG of 5.6% and in SunTrust Banks of 5.1%.

Sears Holdings led gainers in the S&P 500 index with a surge of 12% followed by gains in Autodesk Inc of 10.7%, in CME Group Inc of 5.8%, in Archer Daniels Midland of 5.8%, in Ensco International of 5.5% and in Viacom Inc of 5.1%.

South American Markets Indexes

Mexico Bolsa Index increased 271.98 or 1.2% to 24,093.24. Brazil Bovespa Stock Index gained 489.84 or 1.0% to 50,577.17.

Argentina Merval Index added 0.1%, Chile Stock Market Select index decreased 0.01% and Peru Lima General Index increased 1.9%. Colombia IGBC General Index edged lower 0.3% and Venezuela Stock Market Index edged up 0.5%.

Europe Markets Review

In London FTSE 100 Index closed higher 19.82 or 0.46% to 4,365.29, in Paris CAC 40 Index increased 10.56 or 0.33% to close at 3,227.97 and in Frankfurt DAX index higher 18.08 or 0.37% to close at 4,918.75. In Zurich trading SMI decreased 100.01 or 1.82% to close at 5,409.26.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed lower 38.34 or 0.41% to 9,225.81, Hang Seng index in Hong Kong decreased 136.97 or 0.80% closed to 17,062.52, CSI 300 index in China lower 9.33 or 0.34% closed to 2,740.68. ASX 200 index in Australia decreased 52.30 or 1.37% closed to 3,761.60. The KL Composite index in Malaysia higher 9.70 or 0.94% closed to 1,045.26.

The Kospi Index in South Korea decreased 17.90 or 1.26% to close at 1,403.75. SET index in Thailand closed higher 5.25 or 0.96% to 554.02 and JSE Index in Indonesia decreased 4.01 or 0.21% closed to 1,881.71. The Sensex index in India increased 150.61 or 1.10% closed to 13,887.15.

Commodities, Metals, and Currencies

Crude oil increased $0.50 to close at $61.55 a barrel for a front month contract, natural gas decreased 8 cent to $3.52 per mBtu and gasoline futures increased 3.12 cents to close at 183.09 cents per gallon.

Wheat futures closed up 9.00 cents in Chicago trading and closed at $5.97 a bushel. Sugar increased 0.08 cent in trading at 15.70 cents a pound. Soybean future closed down 9.00 cent to $11.66 a bushel.

Gold increased $6.30 in New York trading to close at $957 per ounce, silver closed up $0.24 to $14.69 per ounce and copper for the front month delivery increased 5.15 cents to $2.10 per pound.

Dollar edged lower against euro to $1.4004 and closed down against the Japanese yen to 94.79.

Yields on 10-year U.S. bonds increased to 3.45% and with 30-year maturities closed up at 4.38%.