Thursday, June 20, 2013

Dow plunges as Treasury yields soar

Dow dropped 353 closing near the low, decliners ahead of advancers 13-1 & NAZ lost 72.  The MLP index sank 12+ (one of its worst days in history) to 436s & the REIT index was off 11+ to the 264s.  Junk bond funds were about 3% lower (another enormous drop) & Treasuries also fell, taking the yield on the 10 year Treasury to 2.42%.  Commodities also had a horrible day with oil dropping & gold plunging almost 100, going below 1300.

AMJ (Alerian MLP Index tracking fund)

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CLV13.NYM...Crude Oil Oct 13...95.13 Down ...3.18  (3.2%)

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


Live 24 hours gold chart [Kitco Inc.]

Bernanke Faith in Housing Seen in Mortgage Bonds

Photo:   Bloomberg

US mortgage rates, after increasing at the fastest pace in a decade, are poised to rise even further after Big Ben said the central bank is ready to slow its purchases of Treasuries & bonds backed by housing loans.  Yields on Fannies Mae's 3.5%, 30-year securities have soared 0.38 percentage point in the past 2 days to a 19-month high of 3.1%.  The price tumbled 1.3¢ yesterday, the most since 2010, to 102¢ on the dollar, before falling to 101.6¢ today.  The average rate on new loans packaged into such bonds rose last week to 3.98%, the 6th straight increase, from 3.35% at the start of May, Freddie Mac surveys show.  Bernanke said at a news conference yesterday that the rise in mortgage rates hasn’t been “so dramatic” as he suggested the housing market may be strong enough to withstand higher borrowing costs.  But investors sold bonds that guide home-loan rates as they focused on his expectation that the Fed’s $85B in monthly debt buying will slow later this year.  Asked whether rates exceeding 4% would derail the rebound, Bernanke said that “one important difference now is that people are more optimistic about housing” & surveys show they expect prices to climb further.

Bernanke Faith in Housing Seen in Mortgage Bonds: Credit Markets

The ECB probably won’t take over as euro-area bank supervisor until the final months of 2014, further delaying the banking union that leaders wanted in place quickly to stem the sovereign debt crisis.  Late next year is now the timeline for the transition to the new banking supervision regime, in part because of German-caused procedural delays.  This contrasts with an initial goal of moving to the new system in Mar, later pushed back to Jul.  The ECB’s new role will be a turning point for the currency zone because it will follow the central bank’s first-ever look at bank balance sheets, which will start in Q4 & conclude before the new oversight begins.  It also may be the start date for new backstop tools such as direct aid from the €500B ($660B) European Stability Mechanism.  As a result, postponing the new supervision regime could reopen questions about whether EU leaders will follow through on promises to break the link between banks & sovereigns.  Over the past 3 years, 5 of the area’s 17 nations have sought bailouts & investors remain jittery that contagion could flare up again.

ECB Bank Oversight Start Said to Be Delayed to Late 2014

AT&T, a Dow stock, explored potential deals in the last two months including buying part of Telefonica or some of its foreign assets.  The 2nd-largest US mobile operator informally approached Spanish authorities to discuss its interest in buying as much as 29.9% of Telefonica, & was told such a proposal wouldn’t be welcome, according to unnamed sources.  AT&T has also evaluated scenarios that include buying assets such as Telefonica’s U.K. unit O2 or Latin American businesses.  Also on AT&T’s potential shopping list is EE, the UK, joint venture of France Telecom & Deutsche Telekom.  AT&T has also evaluated an outright merger with Telefonica in recent months, though this would be complicated by the Spanish company’s €51B ($68B) in debt & a need for the cooperation of Carlos Slim.  The Mexican telecommunications billionaire, with has close ties to AT&T, competes with Telefonica in several Latin American countries with his wireless operator America Movil.  The stock fell 90¢.

AT&T Said to Explore Deals With Telefonica, Eyeing Europe

AT&T (T)

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This was one of the ugliest days the markets have done since the financial meltdown 5 years ago.  I must have sounded like a broken record.  But Dow was up a phenomenal 3K in the last year, based largely on low yields.  After Big Ben spoke yesterday, it's no longer a question about low yields ending in the distant future.  Bond yields are having huge gains & the higher cost of capital will hurt all businesses that borrow.  Today, virtually every stock on NYSE dropped.

Dow Jones Industrials

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