Treasuries pare gains as dollar weakens before Yellen; oil rises

Bloomberg.- Bonds pared gains as oil advanced and investors awaited testimony from Federal Reserve Chair Janet Yellen that may help shape the outlook for interest rates.

Government securities in Europe and the U.S. rose earlier and Japanese bonds halted a five-day selloff after the Bank of Japan offered to buy an unlimited amount of debt at fixed yields. Bloomberg’s dollar index slipped from a nine-month high. Crude reversed declines as OPEC and Russia prepared to meet in Doha for more talks. European shares were little changed, and Asian equities rose with Japan’s Topix measure closing on the brink of a bull market.

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Yellen will address Congress for the first time since Donald Trump’s victory in the Nov. 8 presidential election, an unexpected win that spurred speculation his plans for fiscal stimulus will quicken the pace of Fed interest-rate hikes. A December increase has become a foregone conclusion in the futures market, while prospects for further tightening triggered a global bond rout and boosted the dollar since the start of last week. The BOJ said Thursday that it would purchase bonds at a fixed rate, a tool introduced when deciding in September to seek control of the yield curve.

“From the BOJ operation, it looks like it’s a firmer cap on yields than was previously being expected, so that’s supportive for fixed-income globally,” said Peter Chatwell, head of rates strategy at Mizuho International Plc in London. “It means that the other markets can trade with a bit less of downside risk, or downside fear.”

Bonds

The yield on U.S. securities due in a decade retreated further from this year’s high of 2.3 percent, reached Monday, after the BOJ’s first offer to buy an unlimited amount of securities. Japanese bonds also rose after the operation, which was viewed by many as a response to the surge in global yields.

Treasury 10-year yields fell one basis point to 2.21 percent at 7:56 a.m. in New York. Germany’s similar-maturity bund yield was little changed at 0.29 percent, days after reaching a 10-month high of 0.4 percent. Japan’s 10-year bond yield slipped one basis point to 0.01 percent, having turned positive this week for the first time since September. Australia’s 10-year yield fell seven basis points to 2.57 percent.

The U.S. government will sell Treasury Inflation Protected Securities on Thursday, and demand may be robust, with BlackRock Inc., Fidelity Investments and Pacific Investment Management Co. –which between them oversee almost $9 trillion– all having recommended the securities since the presidential vote. That’s because speculation is building that Trump’s policies will boost consumer prices.

Currencies

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, was down 0.3 percent. The yen was little changed at 109.22 per dollar, but is still down more than 3 percent since Trump’s victory. The euro strengthened 0.4 percent against the dollar, halting an eight-day losing streak.

The pound gained for the first time in four days as figures from the Office for National Statistics showed U.K. spending remained robust despite the Brexit vote.

Mexico’s peso slipped 0.2 percent, falling for the first time this week, amid speculation higher borrowing costs may not help support the currency. Banxico will probably raise the benchmark rate 50 basis points to 5.25 percent on Thursday, according to the median estimate of economists surveyed by Bloomberg.

Malaysia’s ringgit fell for a seventh day, its longest stretch of losses in more than a year. Bank Negara Malaysia said Wednesday it will continue to restrict speculative activity in the currency market. The Vietnamese dong fell for a fourth day to a five-month low.

“I’m just seeing this as overall dollar strength,” said Wu Mingze, a foreign-exchange trader in Singapore at INTL FCStone Inc., a Nasdaq-listed global payments-service provider. “Unfortunately speculators will treat Bank Negara’s statements as a sign of weakness if they do not actually do something.”

Stocks

The Stoxx Europe 600 Index added less than 0.1 percent. While the gauge has remained calm in recent days, it has alternated between intraday gains and losses for eight straight sessions, the longest streak in two years. Its valuation of about 14 times estimated earnings is at its lowest since Brexit relative to a measure tracking global shares.

In the U.S., futures on the S&P 500 Index were also little changed after the gauge slipped 0.2 percent on Wednesday. It closed within 0.6 percent of the record reached in August, while the Dow Jones Industrial Average slipped 0.3 percent from the all-time high it reached on Tuesday. The Russell 2000 Index of small-cap shares closed at a peak.
Among stocks moving on corporate news:

– Zurich Insurance Group AG gained 2.7 percent after saying it will increase its dividend and cut costs.
– Royal Ahold Delhaize NV declined 3.1 percent as its quarterly profits missed analyst projections.
– ABN Amro Group NV fell 3.1 percent after the Dutch state sold 65 million of its shares.
– Cisco Systems Inc. lost 4.4 percent in early New York trading after projecting sales and profit pointing to a slowdown in corporate spending on technology hardware.

Commodities

Crude gained 1.7 percent to $46.32 a barrel in New York as Saudi Arabia as Saudi Arabia, due to meet with Russia and some OPEC nations in Doha, said it’s optimistic that producers will reach an agreement to stabilize world markets.

Russia will hold discussions with representatives from the Organization of Petroleum Exporting Countries in Doha from Thursday, Energy Minister Alexander Novak said. There’s a high chance of an agreement and Russia is ready to support a decision, he said.

Copper traded near a 17-month high in Shanghai. Jiangxi Copper Co., China’s top producer, agreed to cut processing fees for next year as mine supply is poised to be little changed and Chinese smelting capacity expands.

Gold has stabilized after its U.S. election thrashing and is on course to end the week little changed, even as investors bail from bullion-backed exchange-traded funds. Prices for immediate delivery climbed 0.4 percent to $1,229.84 an ounce.

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