Home' Trinidad and Tobago Guardian : June 7th 2015 Contents JUNE 7 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
STOCKS | SBG9
It s been a tough week for bond
investors. Bonds extended their
slump on Friday, after a report
showed the US employers added
280,000 workers to their payrolls in
May. That was more jobs than fore-
cast and suggests that the economy
is back on track after starting the
year in a slump.
The yield on the 10-year Treasury note
climbed to an eight-month high of 2.43 per
cent, directly after the report was published.
That s 0.31 per centage points higher than it
was at the start of the week, a big move in
the Treasury market.
Traders are speculating that the Federal
Reserve will raise its benchmark interest rate
later this year, for the first time since the reces-
sion as the economy maintains its recovery.
Bond yields typically climb when investors are
expecting higher rates.
The jobs report "will certainly keep rates
moving higher," said Kathy Jones, Vice Pres-
ident, Fixed Income Strategist, Schwab Center
for Financial Research.
She expects the yield on the 10-year note
to climb as high as 2.5 per cent in coming
weeks if reports continue to show that the
economy is recovering from its sluggish start
to the year.
The level of Treasury bond yields matters
to most Americans because they used as a
benchmark for a range of borrowing costs,
such as on mortgages.
Long-term US mortgage rates have already
started to creep higher, meaning consumers
will have to pay slightly higher interest pay-
ments when borrowing. The average rate on
a 30-year fixed mortgage was 3.84 per cent
in May, compared with a rate of 3.67 per cent
in January, according to mortgage company
That shift equates to an increase of $9 a
month for every $100,000 in mortgage debt.
Still, mortgage rates remain low compared to
historical averages. A decade ago the rate on
a 30-year mortgage was 5.58 per cent.
To be sure, few investors are expecting a
huge jump in yields simply because inflation
remains so low. Overall consumer prices edged
up 0.1 per cent in April, the Labor Department
said last month, but overall they are still down
from 12 months ago after a big drop in energy
"We re not thinking that yields are going
to run away from us here," said Marc Doss,
regional chief investment officer for Wells
Fargo Private Bank. "The big move has occurred and now it will be more gradual."
Doss said that investors globally had become
too pessimistic on the outlook for the world
economy and had rushed to buy bonds. The
surge in buying had pushed the yield on the
10-year note as low as 1.65 per cent by the
end of January.
At one point, prices on some European gov-
ernment bonds had risen so high that they
carried a negative yield. Instead of getting an
interest payment, traders were paying bor-
rowers to take their money.
Bonds yields in the US are also much higher
than they are in other parts of the world. For
example, the yield on the 10-year German
government bond is 0.85 per cent. In Japan
it is 0.48 per cent. That means that US Treas-
ury notes are still attractive to overseas investors
who are seeking an income, ensuring demand
for the securities.
Investors also say that the move higher in
yields is also being exacerbated by a dearth
of traders willing to step in and buy when
prices are falling.
Banks and other middlemen have been
pulling back from this matchmaking since the
financial crisis because of new regulations
limiting their activities. They have largely
abandoned their role as a buyer or seller of
last resort and have slashed amounts of bonds
that the hold on their books for trading.
And it s not just bond yields that are slump-
Utilities have also been falling sharply as
bonds have sold off.
At the start of the year, investors seeking
an income bought the dividend-rich stocks
as an alternative to bonds. Now that bond
yields are rising, the sector looks less attractive
by comparison. Utilities dropped 1.3 per cent
on Friday and are now down 10.3 per cent to
the year, making them the worst performing
sector in the Standard & Poor s 500 index this
Real Estate Investment Trusts, popular for
the same reason as utilities are also slump-
During week bond yields climbed steadily
throughout the week as investors sold. Yields
even rose on days when there weren t any big
That s unusual said Schwab s Jones.
"We ve seen a lot of these big moves in a
day and people just have to get used to the
idea that this is the new bond market," said
How the Dow Jones
industrial average fared
The Dow Jones industrial average fell 56.12
points, or 0.3 per cent, to 17,849.46.
The Standard & Poor's 500 index lost 3.01
points, or 0.1 per cent, to 2,092.83.
The Nasdaq composite edged up 9.33
points, or 0.2 per cent, to 5,068.46.
For the week:
The Dow Jones industrial average fell
161.22 points, or 0.9 per cent.
The Standard & Poor's 500 index fell 14.56
points, or 0.7 per cent.
The Nasdaq composite fell 1.57 point, less
than 0.1 per cent.
For the year:
The Dow is up 26.39 points, or 0.1 per cent.
The S&P 500 index is up 33.93 points, or 1.7
The Nasdaq is up 332.40 points, or 7 per
KEEPING SCORE: European stocks slumped in
early trading, with France s CAC 40 down 1.3 per
cent at 4,922.09 and Germany s DAX shedding 1.1
per cent to 11,215.40. Britain s FTSE 100 fell 0.9 per
cent to 6,799.65. US stocks were poised to open
higher, with Dow futures up 0.1 per cent at 17,934.00
and S&P 500 futures gaining 0.1 per cent to 2,100.50.
GREEK TURMOIL: The Mediterranean country s
battle to stay afloat is intensifying after the government
said it would postpone a payment due Friday to the
International Monetary Fund until the end of the
month. Prime Minister Alexis Tsipras is scheduled
to address an emergency session of Parliament on
Friday as discontent rises within his party.
ANALYST S TAKE: "With uncertainty about
Greece repaying or not repaying the IMF today out
of the way ... markets may focus on the political fall-
out from this decision," Rabobank strategists said in
ASIA S DAY: Tokyo s Nikkei 225 fell 0.1 per cent
to close at 20,460.90 and South Korea s Kospi fell
0.2 per cent to 2,068.10. Hong Kong s Hang Seng
dropped 1.1 per cent to 27,260.16 and Australia s
S&P/ASX 200 slipped 0.1 per cent to 5,498.50. South-
east Asian benchmarks were also mostly lower but
the Shanghai Composite Index in mainland China
gained 1.5 per cent to 5,023.10.
ENERGY: Benchmark US crude dropped 63 cents
to $57.38 a barrel in electronic trading on the New
York Mercantile Exchange. The contract fell $1.64 to
close at $58.00 a barrel on Thursday on expectations
that OPEC would decide to keep its output high at
its Friday meeting in Vienna. Brent crude, a benchmark
for international oil used by many US refineries, lost
41 cents to $61.62 in London.
CURRENCIES: The euro rose to $1.1259 from
$1.1195. The dollar strengthened to 124.79 yen from
124.45 yen. AP
Trader Thomas Kay uses his mobile phone as he works on the floor of the New York Stock
Exchange, Friday, June 5, 2015. A strong jobs report knocked US government bond and stock
prices down as investors bet that the Federal Reserve could raise interest rates later this year.
Screens at the stock exchange show falling stocks in red in Athens, Friday, June
5, 2014. Greek Prime Minister Alexis Tsipras is set to address an emergency
session of Parliament over the country's struggles to get a deal with creditors, a
day after his government opted to delay loan repayments to the International
Monetary Fund---a gambit that has rattled markets all around the world AP
Strong jobs report
jolts US bond
World stocks slip on Greek impasse with creditors
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