Treasuries advance as Europe linger, US stocks fizzle as banks offset economy

(Bond Market Wrapup for October 12th, 2012) – Treasuries advanced for the fourth day after a report by the International Financing Review suggested the European Stability Mechanism didn’t have sufficient cash to rescue Madrid if the country asked for help before the end of the year and investors sought refuge from Europe’s sovereign debt crisis.

Risk appetite had improved earlier after the Michigan University/Reuters Consumer Sentiment Index rose to 83.1, the highest in five years. However, a Labor Department report showed the producer price index rose 1.1 percent in September, stoking inflation worries. Government officials attributed the rise to a spike in food and energy prices.

The benchmark 10-year Treasury yield declined one basis point, or 0.01 percentage point, to 1.66 percent while the yield on 30-year Treasury bond fell two basis points, or 0.02 percentage point, to 2.83 percent.

Bond funds extended gains with the iShares Barclays 20 Year Treasury Bond ETF (TLT) gaining 31 cents, or 0.25 percent, to end at $123.97 while the Vanguard Total Bond Market ETF (BND) gained 6 cents, or 0.07 percent to finish at $85.

US stocks closed nearly unchanged Friday, capping off their worst week in four months as investors turned cautious after a slump in financial and European shares eclipsed a surprise jump in consumer confidence.

The Dow Jones Industrial Average (DJIA) added 2.46 points, or 0.02 percent, to end the week at 13,328.85, giving up a 74.93-point gain during the session. The blue-chip index is off 2.1 percent for the week, its biggest decline since June 1.

Breadth within the blue-chip index turned negative with decliners beating winners 18 to 11.

JP Morgan Chase (JPM), Bank of America (BAC) and Verizon (VZ) declined the most while Wal-Mart Inc (WMT) and Boeing (BA) led the biggest percentage gainers.

The S&P 500 Index (SPX) lost 4.25 points, or 0.3 percent, to end at 1428.59, down 2.2 percent for the week with consumer staples gaining the most and financials lagging for the day among its 10 business groups.

The NASDAQ Composite (COMP) shed 5.3 points, or 0.2 percent, to close at 3044.11. The tech-heavy index is down 2.9 percent for the week and is up 16.9 percent in 2012.

For every two stocks declining, one advanced on the NYSE.

Oil prices for November delivery fell 21 cents to close at $91.86 a barrel.

Gold futures for December delivery dropped $10.90 to $1,759.70 an ounce.

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