U.S. Bonds Yields Rise; GM Bankruptcy Looms

123jump.com Staff
27 May, 2009
New York City

U.S. stocks dropped as the government conducted its second day of debt auction. The wide participation in the bond auction did not prevent yields from rising. The benchmark yield spread rises to 276 basis points. Stocks fell as the U.S. carries our $171 billion debt auction this month.

[R]5:00 PM New York, 10:00 PM London, 8:00AM Sydney – U.S. stocks dropped as the government conducted its second day of debt auction. The wide participation in the bond auction did not prevent yields from rising. The stock investors fear that $2 trillion debt offering this year will force short and long term interest rates higher.[/R]

U.S. stocks closed lower as bonds dropped.

The Treasury auction of $35 billion attracted foreign central banks on a second day this week. The Treasury auction this week plans to raise $101 billion. The yields at close in bond markets increased to 3.74% from3.55% for ten-year bonds and increased for 30-year bonds to 4.63%. The 5-year notes closed at 2.46%.

The yield curve has been steepening in the last few weeks as the U.S. debt auction approached. The bid-to-cover ratio for today’s auction was 2.32 according several bond traders.

The benchmark yield spread widened to 276 basis points, the difference in yields between the 2-year note and 10-year bond.

The U.S. government plans to raise nearly $2 trillion this year and $171 billion this month. U.S. is raising nearly $1.3 trillion in debt in short term debt of maturity less than five years.

The U.S. Fed participated in today’s auction and purchased $7.55 billion of treasuries with maturities of 3 and 5 years. So far this week, the Fed has purchased $7.55 billion in treasuries and acquired $130.53 billion of government debt since March 25.

General Motors edged closer to bankruptcy after the bond holders rejected the company offer to exchange debt for 10% stake in the company. Bondholders are focused on getting cash immediately and GM is focused on its existence. The government bailout conditions required at least 90% bondholders to agree to the debt swap.

If GM files for the bankruptcy protection one of the likeliest outcome is that the U.S. government may own 70% of the company, auto workers union or its health or retiree trust may control 20% stake and bond holders 9%. Present shareholders may control 1% stake in the company.

European market indexes closed higher. Germany reported consumer price index declined in May. Consumers and businesses reported a rise in confidence in France. Steel stocks gained in Frankfurt. EDF plans to raise 1 billion euros.

In London trading, shipping freight rate index closed higher for the eighteenth day in a row. Speculators cited congestion at Chinese ports, rising shipping day rates and demand for iron ore in Asia. Media stocks closed higher after a broker revised earnings outlook for the industry.

Stocks in Japan closed higher, lifted by global markets. April exports plunged 36% and trade surplus in the month declined 85%. Exports to China, U.S. and Europe dropped sharply. Nikon plans to eliminate 1,000 jobs. Toshiba completed $3 billion rights offering.

In India, Finance Minister Mukherjee said that the government is focused on increasing infrastructure spending but will meet its budget deficit target of 5.5% in the current fiscal year. Reliance Industries may hold more than expected natural gas. April exports may have declined 33%.

North American Markets

Dow Jones Industrial Average decreased 173.47 or 2.1% to a close of 8,300.02, S&P 500 Index declined 17.27 or 1.9% to 893.06, and Nasdaq Composite Index edged lower 19.35 or 1.1% to close at 1,731.08. Toronto TSX Composite Index closed down 143.74 or 1.4% to 10,142.16.

Of the stocks in S&P 500 index, 473 increased, 25 declined and 2 were unchanged.

General Motors led decliners in the S&P 500 index with a loss of 20.1% followed by losses in Allegheny Tech of 10.2%, in Goodyear Tire of 9.9%, in KeyCorp of 8.4% and in Aflac Inc of 7.9%.

SanDisk Corp led gainers in the S&P 500 index with a surge of 14.3% followed by gains in Teradyne Inc of 6.6%, in E*Trade Financial of 6%, in Dynegy Inc of 5.3%, in Massey Energy Company of 4.4% and in Sunoco Inc of 4.3%.

South American Markets Indexes

Mexico Bolsa Index decreased 132.27 or 0.5% to 24,507.81. Brazil Bovespa Stock Index fell 49.19 or 0.1% to 51,791.61.

Argentina Merval Index declined 0.9%, Chile Stock Market Select index decreased 2.4% and Peru Lima General Index dropped 0.6%. Colombia IGBC General Index edged lower 0.4% and Venezuela Stock Market Index edged up 0.4%.

Europe Markets Review

In London FTSE 100 Index closed higher 4.51 or 0.10% to 4,416.23, in Paris CAC 40 Index increased 24.77 or 0.76% to close at 3,294.86 and in Frankfurt DAX index higher 15.17 or 0.30% to close at 5,000.77. In Zurich trading SMI decreased 11.85 or 0.22% to close at 5,419.42.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed higher 127.96 or 1.37% to 9,438.77, Hang Seng index in Hong Kong increased 893.71 or 5.26% closed to 17,885.27, CSI 300 index in China higher 39.95 or 1.47% closed to 2,759.71. ASX 200 index in Australia increased 12.70 or 0.34 % closed to 3,801.10. The KL Composite index in Malaysia lower 3.95 or 0.38% closed to 1,047.68.

The Kospi Index in South Korea decreased 10.02 or 0.73% to close at 1,362.02. SET index in Thailand closed higher 12.72 or 2.34% to 555.41 and JSE Index in Indonesia increased 35.26 or 1.90% closed to 1,892.84. The Sensex index in India increased 520.41 or 3.83% closed to 14,109.64.

Commodities, Metals, and Currencies

Crude oil increased $0.56 to close at $63.01 a barrel for a front month contract, natural gas decreased 2 cent to $3.63 per mBtu and gasoline futures increased 2.83 cents to close at 188.07 cents per gallon.

Wheat futures closed up 13.75 cents in Chicago trading and closed at $6.25 a bushel. Sugar decreased 0.17 cent in trading at 15.77 cents a pound. Soybean future closed up 1.50 cent to $11.975 a bushel.

Gold decreased $3.40 in New York trading to close at $951.70 per ounce, silver closed up $0.17 to $14.765 per ounce and copper for the front month delivery decreased 4.70 cents to $2.09 per pound.

Dollar edged higher against euro to $1.3826 and closed up against the Japanese yen to 95.34.

Yields on 10-year U.S. bonds increased to 3.74% and with 30-year maturities closed up at 4.63%.