Closing Market Recap: Treasuries Rally and Equities Grind Lower

Market Updates | Written by CEP News | Jul 28 08 20:31 GMT |

(CEP News) - Concern about the U.S. financial sector caused a slow, flight-to-quality on Monday. The Dow Jones Industrial Average fell more than 2% and 10-year U.S. yields fell 8 basis points to 4.01%. The Canadian equity market closed down slightly despite a small rebound in resource stocks while Canadian government bonds underperformed the U.S.-led rally. Market watchers suggested comments from Minneapolis Fed President Gary Stern re-ignited worries. In an interview with the Financial Times over the weekend, the FOMC voter said the credit crunch will last for several more months and conditions could deteriorate further. "I don't think the headwinds have diminished. In fact, if anything, I think they are picking up a little steam," the Fed governor said. "The Stern comments on credit crunch lasting for months hurt bank stocks, helped soften bond yields and the dollar," wrote Jamie Coleman, analyst at Thomson FX Hub. U.S. two-year yields are down 12.9 bps to 2.58%, with five-year yields down 11.6 bps to 3.32%, 10-year yields down 8.6 bps to 4.01% and 30-year yields down 7.4 bps to 4.61%. The Eurodollar September 08 contract is up 3.5 ticks to 97.12 The U.S. Treasury market was characterized by a strong rally on light volume. Canadian, German and UK sovereign debt lagged the rally. Yields on two-year Canadian government bonds are down 7.8 bps to 3.07%, with five-year yields down 7.5 bps to 3.34%, 10-year yields down 6.5 bps to 3.78% and 30-year yields down 3.5 bps to 4.13%. The Canadian 10-year note is yielding 23.55 bps less than the U.S. 10-year note. In Germany, returns on two-year German bonds are down 6.3 bps to 4.36%, with five-year yields down 8.5 bps to 4.45%, 10-year yields down 7.8 bps to 4.53% and 30-year yields down 6.3 bps to 4.81%. Yields on UK two-year bonds are down 5.5 bps to 4.92%, with five-year yields down 4.9 bps to 4.90%, 10-year yields down 4.2 bps to 4.95% and 30-year yields down 3.6 bps to 4.59%. U.S. equity markets were indecisive in early trading but began a slow grind lower shortly after the open of trading. Stocks fell to session lows as crude prices rebounded to $124.80 after key support at $122 held for the second time in two trading days. The Dow Jones industrial average closed down 240 points to 11,131, the S&P 500 down 23 points to 1,234 and the Nasdaq down 46 points to 2,264. "Renewed economic concerns and financial sector jitters related to further housing price declines weighed on the indices," wrote Ian Lyngen, interest rate strategist at RBS Greenwich, in a note to clients. In Canada, the Toronto's S&P/TSX composite index closed down 75 points to 13,304. It was up more than 100 points for part of the session but worldwide financial worries stemming pulled down the Canadian banking sector. WTI crude oil was up $1.55 to $124.81. European stock markets closed in negative territory with the Eurostoxx down 30 points to 2,827, the UK FTSE 100 down 40 points to 5,313 and the German DAX down 86 points to 6,351. In foreign exchange, the Canadian dollar is down 0.0030 to 0.9778 against the U.S. dollar (1.0227 USD/CAD) and down 0.70 to 105.08 against the yen. The U.S. dollar is down 0.40 to 107.46 against the yen and the Dollar Index is down 0.171 to 72.689. The euro is up 0.0032 to 1.5740 against the U.S. dollar, up 0.0076 to 1.6096 against the Canadian dollar, up 0.0007 to 0.7894 against the pound sterling and is lower by 0.30 to 169.14 against the yen. The pound sterling is up 0.0023 to 1.9939 against the U.S. dollar and up 0.0079 to 2.0388 against the Canadian dollar. The day ahead kicks off what will be a busy week for U.S. economic data. The Case-Shiller house price index is expected to fall to -16.0% in May while July the Conference Board's consumer confidence measure is expected at 50.0. All data taken at 4:22 p.m. EDT. By Adam Button, abutton@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Cristina Markham, cmarkham@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it CEP Newswires - CEP News © 2008. All Rights Reserved. www.economicnews.ca The Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News. A copy of CEP News disclaimer can be found at http://www.economicnews.ca/cepnews/wire/disclaimer.