10-Year T-Note Yield Lowest Since October
Another rush into Treasury bonds Tuesday knocked the bellwether 10-year T-note yield below 4% for the first time since February, after a surprisingly weak regional manufacturing report raised new worries about the economy.
French voters’ rejection of the European Union constitution also may have fueled foreign demand for U.S. bonds as an investment haven, analysts said. The dollar soared against the euro, indicating rising demand for U.S. assets.
Stocks, however, ended mixed on Wall Street. The Dow Jones industrial average lost 75.07 points, or 0.7%, to 10,467.48.
In the bond market, the 10-year T-note yield ended the day at 3.98%, down from 4.07% on Friday. U.S. markets were closed Monday in observance of Memorial Day.
The T-note yield, a benchmark for other long-term interest rates including mortgage rates, dipped briefly below 4% in February, but Tuesday’s close was the lowest since October.
One catalyst for the latest bond rally was a report from the Purchasing Management Assn. of Chicago, which said its index of Midwest manufacturing activity fell in May to the lowest level in almost two years, heightening concerns that the U.S. economy would continue to slow. By contrast, the Conference Board said its U.S. consumer confidence index rose in May.
Over the last month, the Treasury bond market has seemed to focus more on downbeat economic data than on upbeat data. Another major indicator is due Friday, when the government reports on May employment trends.
The bond market has become “a one-way train,” said James Caron, an interest rate strategist at Merrill Lynch & Co. in New York. “You can’t seem to get out of the way of this thing. The market has the ability to grind to lower yields.”
In a note to clients, Morgan Stanley Chief Economist Stephen Roach said that for the first time in years he was no longer bearish on bonds. As recently as late March, the 10-year T-note was above 4.6%.
The stronger dollar is giving foreign investors another reason to buy U.S. bonds. The euro slumped Tuesday to $1.231, down from $1.248 in European trading Monday and the weakest since October. France’s rejection of the EU constitution was viewed as a blow to Europe’s economic prospects.
Yields fell on Treasury issues of nearly every maturity Tuesday. The five-year T-note ended at 3.74%, down from 3.81% on Friday.
Analysts say some bond buyers are betting that the Federal Reserve will halt its year-old credit-tightening campaign sooner than later.
That view also has helped to lift the stock market since late April. But on Tuesday, Wall Street struggled.
The broader Standard & Poor’s 500 index lost 7.28 points, or 0.6%, to 1,191.50, and the technology-heavy Nasdaq composite slipped 7.51 points, or 0.4%, to 2,068.22.
Although major indexes were mostly lower in active trading, winners edged losers on the New York Stock Exchange.
Such a split is unusual, but analysts noted that end-of-the-month trading patterns can be quirky as institutions that control big blocks of stock execute various strategies.
The Dow added 2.7% in May, the S&P; 500 climbed 3%, and Nasdaq jumped 7.6% for its largest gain since October 2003. Even so, all three indexes still are in the red year-to-date.
“We’ve seen a good run in the [stock] market, and now it’s pausing a little bit,” said Scott Jacobson, chief investment strategist at brokerage Jefferies & Co. “The debate now is how far the Fed will go. Will the Fed drive the economy into a slow patch?”
Among the day’s market highlights:
* DreamWorks Animation SKG sank $2.95 to $29.40 after its latest film, “Madagascar,” missed opening weekend box-office sales estimates from at least two analysts and a Wall Street Journal article chronicled how the company overestimated DVD sales for “Shrek 2.”
* Home builders rallied on the prospect of lower mortgage rates. KB Home climbed $1.28 to $67.54, Lennar added 45 cents to $58.01 and Toll Bros. gained $1.53 to $92.59.
* Google jumped $11.27 to a record $277.27 after a Piper Jaffray analyst raised the firm’s price target on the stock to $300.
* Near-term crude oil futures continued edging higher as U.S. refineries increased gasoline production in anticipation of summer demand. Oil rose 12 cents to $51.97 a barrel in New York.
