Treasuries Advance on Signs of Global Slowdown, Stocks Plunge

(Bond Market Wrapup for June 21st, 2012) Treasuries advanced for the first time in three days after economic data from the EU area indicated a slowdown in manufacturing while Chinese output shrank with manufacturing activities falling to a seven month low.

The benchmark 10-year yield dropped the most this week after the US Labor Department said there were 387,000 first-time filings for unemployment benefits, higher than the 380,000 projected by analysts. The Philadelphia Fed’s manufacturing index dropped sharply to -16.6 against economists’ forecast of 0.2. According to data released by the National Association of Realtors, existing home sales came at an annualized rate of 4.55 million units, also slightly worse than  expected. However, the Conference Board’s index of leading economic indicators for May rose 0.3 percent, beating expectations after a 0.1 percent drop in April

The yield on 10-year notes dropped four basis points to 1.61 percent in late afternoon trade, New York time. Yield on 30-year Treasury Bonds slipped six basis points to close at 2.68 percent after Goldman Sachs said investors should short the S&P 500 with a target around 5 percent below current levels.

10 Year Treasury Yield 1 Month Chart

Bond Funds were also up on the day with the iShares Barclays 20 Year Treasury Bond ETF (TLT) up 67 cents, or 0.53 percent, to close at $126.71, while the Vanguard Total Bond Market ETF (BND) gained 14 cents, or 0.17 percent to settle at $84.30.

TLT 1 Month Chart

US stocks closed sharply lower Thursday, losing roughly two percent as investors ran for cover amid worries of a impending global slowdown while rumors of an imminent downgrade of major banks by Moody’s added to the anxiety.  The Dow Jones Industrial Average (DJIA) slumped 250.82 points, or 1.96 percent, to 12,573.37. Among the Dow’s 30 components, only Merck (MRK) closed higher for the day. The biggest percentage decliners included Bank of America (BAC), Alcoa (AA), Cisco (CSCO) and Hewlett Packard (HPQ), all down more than 3 percent.   Dow component John & Johnson (JNJ) slipped after the Wall Street Journal reported that the company is close to settle felony charges with the Justice Department over promotion of its antipsychotic drug Risperdal for about $1.5 billion.

Dow Jones Industrial Average 1 Month Chart

The S&P 500 Index (SPX) dropped 30.18 points, or 2.2 percent, to 1325.51 with energy hitting the ground hardest while utilities performing the best among its 10 business groups.  The tech-heavy NASDAQ Composite (COMP) was hit the hardest, tumbling 71.36 points, or 2.44 percent, to close at 2935.69 after, snapping its five day winning streak.

For every stock rising, four fell on the NYSE.

Oil prices slid about 4 percent to close below $80 a barrel for the first time in eight months. Crude for July delivery shed $3.25 to close at $78.20 a barrel.

Gold futures for August delivery dropped $50.30 to $1,565.50 an ounce.

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