Financial Trader

Bonds, Gold Drop on Manufacturing While S&P 500 Declines

by Rob Verdonck & Susanne Walker - Bloomberg  |  published on December 2, 2013

Government bonds fell around the world after manufacturing grew more than forecast in the U.S., euro area and China. Gold sank and U.S. stocks retreated while the dollar strengthened against most major peers.

Treasury 10-year note yields gained five basis points to 2.8 percent by 3:55 p.m. in New York after German 10-year bund yields climbed five basis points and rates on similar-maturity U.K. gilts jumped eight basis points. Gold dropped more than 2 percent, while oil climbed and natural gas extended its longest rally in more than seven years. New Zealand’s currency rose against all 16 major peers and the dollar climbed versus 12. The Standard & Poor’s 500 Index (SPA) fell 0.4 percent to 1,799.51.

U.S. manufacturing unexpectedly accelerated in November at the fastest pace in more than two years, pointing to a pickup in business spending that will help propel the economy in early 2014. Improving economic data may cause the Federal Reserve to reduce its monthly bond purchases sooner than investors anticipate. A government report at the end of the week will offer clues as to the outlook for the labor market.

“This week is critical, and it culminates on Friday with the employment report, which will be key,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “We’re seeing economic data beat expectations. This week we’ll see if it’s sustainable. If it does beat expectations, we will see Treasuries soften. People are building in expectations that Fed taper will come sooner than later.”

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