Global Rise in Bond Yields

123jump.com Staff
03 Mar, 2006
New York City

Yields are on the rise, across the globe. First Japan then Europe and now in New York. Traders are finally waking upto a different reality on the interest rates. Market averages are under pressure on the account of rate hike concerns. Intel lose 2% on revised revenue guidance. Home builders, transportation and trucking stocks are on the decline on higher energy cost. CBOT adds another 1.5% to the rise of 40% year-to-date.

11:30 AM ET – U.S. Market Morning Update

Bond yields are on the rise as concerns for global rise in yields sets in. recent hike in interest rates in Europe and expected rise in Japan short-term rates has caused 10-year bond to rise to 4.67%.

Naturally home builders are taking hit on the account of rising rates. Toll Bros. ((TOL)) and Hovnaian ((HOV)) declined better than 2% and Beazer Homes ((BZH)), Ryland Group ((RYL)), KB Homes ((KBH)) and Lennar ((LEN)) lost more than 1%.

Chicago Board of Trade ((BOT)) rose another $2.00 on the news that its February contract volume rose 9%.

Steel companies and mining stocks were in the news on the account of merger talks between AK Steel and U.S. Steel. Mittal Steel ((MT)) rose 3% on the general rise in steel stocks in Europe and in New York. Mining stocks BHP Billiton ((BHP)) and Brazilian iron ore mining company C.V.R.D. ((RIO)) declined 1%.

With the rise in oil price energy stocks were up. Baker Hughes ((BHI)), Rowan & Co. ((ROW)), ExxonMobil ((XOM)), Valero ((VLO)) and Tessoro ((TSO)) rose and then turned negative.

9:40 AM ET – U.S. Market Movers

Intel ((INTC)) stated that it expects first quarter revenue to be between $8.7 billion and $9.1 billion lower from the previous forecast of $9.1 to $9.7 billion. Intel also said that because of the lower earnings gross margins will be affected. Intel generated $9.4 billion in revenue in the first quarter last year. The stock was trading 1.5% lower. Market had been worried that the company many be losing market share to AMD ((AMD)) and facing capacity constraint in delivering chips needed in the Asian markets.

Google ((GOOG)) at the opening was trading higher close to $10 after presentation to the analysts at the company quarter. The company painted rosier picture and tried to diffuse earlier concerns related to rate of growth created by it CFO.

Genworth ((GNW)) said that General Electric has priced class A common stock of approximately 71 million shares at $32.75. Genworth will also buy back 15 million class B stock from GE. Genworth will not receive any proceeds of the sales of class A stock. After the sale GE will not own any stake in Genworth. General Electric also confirmed its first quarter earnings of 38 cents to 40 cents and for the year earnings of $1.94 to $2.02 per share.


9:00 AM ET – U.S. Market Opening

Crude oil is on top of trader’s mind. Crude New York Mercantile Exchange rose 43 cents to $63.79 per barrel and rose in London trading as well. Iraq occupations and Iranian government’s defiance to U.N. nuclear watchdog and Iran’s difficult negotiations with Russia have traders worried again.

Starbucks issued, better-than-expected estimate of 6.5%, same-store sales rise of 8% report on expanded food sales. General Electric reaffirmed its earnings guidance for the quarter and the year and released details of the secondary offering for the recent spin-off Genworth.

Under pressure from a takeover artist Nelson Peltz, Wendy’s agreed to divest its Baja Fresh Mexican Grill and expand its 12 member board to 15.

Broader averages are likely to open slightly lower.


8:30 AM ET - Mid-day European Market Update

Interest rates across Europe were o the rise on the back of yesterday’s rate hike by ECB of 0.5%. The Bank is concerned that the steady rise in inflation for the last 13 months may fuel further rise in inflation in the coming months. Traders are betting that the rate will rise in the coming months to 3%. In France 10-year bond rose to 3.58% and in Italy rose to 3.79% whereas Germany’s two year government bond rose to 3.09%. Short-term bond rates are likely to rise faster in the coming months.

According to the European Commission the economy of 12- nations of euro zone is likely to grow at a faster pace than a year ago. The Commission is forecasting a rise of 0.7% in the first, second and third quarter of this year. The Statistics agency also said that in the fourth quarter the economy expanded at 0.3% in the fourth quarter and for the year 2005 it grew at 1.7%. Profits at the European corporations are rising too.

Volkwagen, largest European car maker, reported that its commercial vehicle division has returned to profitability in 2005 and higher earnings are likely in this year on the back of new models and lower production and labor costs.

LVMH, France based world’s largest luxury goods maker, reported a jump in profit of 22% in the second half of the year 2005.


8:00 AM ET - Asian Market Update

Larger markets in Asia closed lower in inflation worries in Japan and rising crude oil price.

In Tokyo Nikkei 225 index closed lower 1.55% and in South Korea KOSPI index closed down 2.83%. January inflation, excluding food and energy, was reported at 0.5% for the third month in a row causing fears among traders that interest rates may soon start rising. Toyota, Honda and other exporters were hurt on the concerns that earnings in Yen may be lower.

Markets in India closed 0.3% lower after rising this week near all-time high of 10,600. Of the major movers HDFC and ICICI Bank closed lower 2.8% and 1.8% respectively. Tata Motors rose 4.7% as the company released that its vehicles sales rose 22% in February. Market rose for four days in a row before closing lower on Friday. Market is likely to move side-ways in the coming months as financial and railway budget have been released.

Markets in Taiwan closed lower 1.34% following the lead from Japan, Hong Kong and South Korea.