Stocks rise on gains in oil, Home Depot forecast
The Treasury bond market just can’t catch a break. Interest rates jumped again Wednesday, sending stock prices down moderately, after investors demanded a higher-than-expected yield at the government’s auction of $19 billion in 10-year notes.
The Dow Jones industrial average fell 24 points.
The day’s activity in the bond market is more troubling news for the housing market, because mortgage rates take their cue from longer-term Treasury yields. Home loan rates surged again this week, with the average fixed rate on a 30-year mortgage topping 5.5%.
The new T-notes were sold at a yield of 3.99%. That was up from a 3.85% yield late Tuesday on previously issued 10-year notes.
“The yield rally is gaining new fuel every day,” said Chris Rupkey, financial economist at Bank of Tokyo-Mitsubishi in New York.
But the market may be drawing a line at 4%, a level the 10-year note hasn’t seen since Oct. 14. After the auction, buyers came out of the woodwork, pushing the 10-year down to 3.93%. The Treasury faces another test today, when it will sell new 30-year bonds.
Investors have been pushing up longer-term Treasury bond yields all year from what were generational lows. Some of the increase simply reflects that people are feeling better about the economy and are shifting money to other assets, including stocks and junk bonds. Investors are also beginning to think about the possibility of the Federal Reserve tightening credit down the road.
But the jump in yields also is a function of the massive supply of new bonds as the U.S. borrows record sums to fund the bailouts of the economy and financial system.
At the same time, some of America’s foreign creditors are signaling that they’ve had their fill of Treasuries. Russia’s central bank warned Wednesday that it might reduce its holdings of U.S. bonds.
In addition to giving Uncle Sam a higher interest bill, the rise in Treasury yields threatens to hammer down any housing market recovery by boosting mortgage rates. The average 30-year home loan rate hit 5.57% last week, up from 5.25% a week earlier, the Mortgage Bankers Assn. said Wednesday.
That’s shutting down the recent refinancing boom: The association’s index of mortgage refinancing activity dived again last week, its third straight weekly decline, to the lowest since mid-November.
In the stock market Wednesday, the Dow fell 24.04 points, or 0.3%, to 8,739.02 after being down as much as 123 points in the wake of the Treasury auction.
The Standard & Poor’s 500 index fell 3.28 points, or 0.4%, to 939.15. The Nasdaq composite index dropped 7.05 points, or 0.4%, to 1,853.08.
Also hurting stocks was another rise in oil prices. Crude futures closed above $71 a barrel for their first time in eight months. The contract for July delivery rose $1.32 to settle at $71.33 a barrel in New York trading.
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