Aug. 19 (Bloomberg) -- Treasury yields jumped to the highest level since 2011 amid swelling speculation the Federal Reserve will trim its bond purchases next month. Emerging-market stocks fell for a third day and industrial metals slid, while U.S. shares fluctuated.
Ten-year Treasury yield increased seven basis points to 2.89 percent and yielded 41 basis points more than bonds in an index of debt from the Group of Seven nations, the highest since May 2010. The MSCI Emerging Markets Index slipped 1.5 percent as India’s rupee dropped to a record against the dollar. The Standard & Poor’s 500 Index swung between gains and losses near a five-week low. Italy and Greece led Europe government bonds lower. Corn added more than 3 percent and soybeans surged 2.8 percent, while copper slid 1.3 percent.
U.S. home sales probably climbed to a three-year high, data is forecast by economists to show Aug. 21, the same day minutes of the Federal Open Market Committee’s July meeting are released. Slowing economic growth in countries from India to Indonesia is driving investors to pull funds from emerging markets, spurred by speculation the Federal Reserve will taper its stimulus program.
"There is a bad mood coming from America, tapering is coming," Robert Halver, head of capital markets research at Baader Bank AG in Frankfurt, said in a telephone interview. "It’s a new world, terra incognita, for what tapering could mean for the market as we have no historical benchmark."
Officials will probably begin to scale back their $85 billion in monthly asset purchases in their program of quantitative easing next month, according to 65 percent of economists surveyed by Bloomberg from Aug. 9-13.
Yields on 10-year Treasury notes will rise above 3 percent as the Fed scales back its debt purchases, according to Rick Rieder, chief investment officer for fundamental fixed-income at BlackRock Inc.
The Fed’s quantitative easing "is too big," Rieder said in an interview with Tom Keene and Sara Eisen on Bloomberg Television. "You have got to taper down QE. It has created this tremendous distortion in interest rates. We think fair value on the 10-year is close to 3-to-3.25 percent. You are getting very close to there."
The yield on 10-year Treasury note extended last week’s 25 basis-point increase. Italy’s 10-year bond yield climbed 10 basis points to 4.28 percent and rates on Spanish, Swedish, Dutch and U.K. debt of similar maturity increased more than four basis points.
"The market’s going to be watching the FOMC minutes this week to see if there’s any more indication in regards to potential of tapering in September," Martin Lakos, a Sydney- based director at Macquarie Private Wealth, said on Bloomberg Television’s "First Up" with Susan Li. "There are still some concerns that a big move in QE will be disruptive."
The S&P 500 fluctuated between gains and losses after decreasing 2.1 last week, its biggest drop since June. The Dow Jones Industrial Average sank 2.2 percent, the biggest weekly drop in 14 months.
Among U.S. stocks moving today, Zillow Inc. dropped 5.2 percent as it agreed to acquire New York City real-estate website StreetEasy. Edwards Group Ltd. surged 18 percent after Atlas Copco AB agreed to buy the company for $1.2 billion. Dollar General Corp. gained 3.1 percent after JPMorgan Chase & Co. raised its rating on the shares.
The Stoxx 600 retreated after climbing for three straight weeks, as three shares fell for every two that advanced. Holcim Ltd. dropped 4.4 percent as UBS AG downgraded its recommendation on the cement maker. Lafarge SA, a competing cement producer, slid 4.2 percent.
The euro gained 0.1 percent to $1.3340 while the dollar strengthened 0.4 percent against the yen.
The MSCI Emerging Markets Index lost the most since July 3. Investors are favoring U.S. stocks over emerging markets by the most ever as fund flows and volatility measures show institutions are increasingly seeking the relative safety of American equities.
Almost $95 billion was poured into exchange-traded funds of American shares this year, while developing-nation ETFs saw withdrawals of $8.4 billion, according to data compiled by Bloomberg. The Standard & Poor’s 500 Index trades at 16 times profit, 70 percent more than the MSCI Emerging Markets Index. A measure of historical price swings indicates the U.S. market is the calmest in more than six years compared with shares from China, Brazil, India and Russia.
Cash is draining from emerging-market ETFs and flowing into U.S. stock funds at the fastest rate on record as bulls say an unprecedented third year of higher earnings growth will support the S&P 500 even as the Federal Reserve begins to remove stimulus. Developing-nation investors say the ETFs will lure more cash after equity valuations reached a four-year low.
India’s rupee fell to an all-time low of 63.23 per dollar and the Sensex index dropped 1.6 percent. Foreigners sold a net $3 billion of Indian stocks and bonds in July amid the slowest growth in a decade in Asia’s third-largest economy, according to data compiled by Bloomberg.
The Jakarta Composite Index sank 5.6 percent, the most since October 2011 and the biggest drop among equity indexes tracked by Bloomberg worldwide, after Indonesia’s current- account deficit widened to a record. The rupiah fell to as low as 10,608 per dollar, the weakest level since 2009, prices from local banks compiled by Bloomberg show.
Foreign institutional investors sold a net $85.4 million of Indonesian stocks on Friday, the biggest outflow since July 8, exchange data compiled by Bloomberg show. The economy grew less than 6 percent last quarter for the first time since 2010.
"Indonesia has seen a gradual but persistent bout of bad news, with slowing growth, quickening inflation and then the current-account deficit," said Leo Rinaldy, a Jakarta-based economist at PT Mandiri Sekuritas, a unit of the nation’s largest lender.
Thailand’s SET Index dropped 3.3 percent, the most in two months, after a report showed the economy unexpectedly shrank in the second quarter, pushing the country into a recession, and the government cut its growth forecast. The baht weakened 0.4 percent, the biggest decline in two weeks.
Soybeans climbed 2.7 percent on speculation dry U.S. weather may curb yields. More than 120 analysts, traders, farmers and processors will inspect farms in Ohio, Indiana, Illinois, Iowa, Nebraska, South Dakota and Minnesota over the next four days as part of the 21st annual Pro Farmer crop tour.
West Texas Intermediate oil was down 0.4 percent at $107.06 a barrel after gaining for six straight days. Brent crude slipped 0.3 percent at $110.07 a barrel. Goldman Sachs Group Inc. raised its price forecasts for Brent, predicting an increase to about $115 in the "very near term" amid supply disruptions in Libya and Iraq.
U.S. natural gas futures for September rose to their highest level of the month, climbing as much as 4 percent to $3.50 per million British thermal units on the New York Mercantile Exchange.
--With assistance from Emma O’Brien in Wellington, Adam Haigh, Claudia Carpenter, Paul Dobson, Andrew Rummer and Michael Shanahan in London, Rajhkumar K Shaaw in Mumbai, Yudith Ho and Harry Suhartono in Jakarta, Jonathan Morgan in Frankfurt, Liz Capo McCormick in New York and Pratish Narayanan in Singapore. Editor: Michael P. Regan
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