Bond prices slumped, sending the yield on the 10-year Treasury note to its highest level in 15 months, as the Federal Reserve upgraded its growth projections for the U.S. economy.
The selloff came as Fed Chairman Ben Bernanke said the central bank’s stimulus measures could be pared back this year. Stronger U.S. growth is widely perceived in the market as heralding an earlier end to the Fed’s program of purchasing $85 billion in bonds each month, an effort that is viewed by many investors as key to the broad rally in asset prices this year.
At the news conference following the Federal Open Market Committee’s policy meeting Wednesday, Mr. Bernanke said it would be “appropriate to moderate the monthly pace of purchases later this year.”
Yields on 10-year Treasurys jumped to an intraday high of 2.325%, according to Tradeweb, up from 2.167% earlier in the day. Late Wednesday the 10-year-note yield was at 2.308%, compared with 2.182% late Tuesday.
Mortgage-backed-securities prices also dropped, pushing the yield on bonds comprising loans backed by government-controlled company Fannie Mae higher by 0.22 percentage point, to 3.20%, the highest level since March 20, 2012, according to Credit Suisse.
The CDX North America Investment Grade index, a proxy for corporate debt run by Markit, weakened 7%, the largest intraday drop since November 2011, and its below-investment-grade counterpart fell 1.6%. Highly rated corporate bonds are more sensitive to sharp interest-rate moves as they are tethered more tightly to Treasury yields. When rates go up, the prices of existing, lower-yielding bonds fall.
Chevron Corp. bonds due in December 2017 traded at 97.647 cents on the dollar, down from 98.253 cents earlier in the session, for a yield of 1.655%, up from 1.512%. Ball Corp. bonds due 2023 traded at 94 cents on the dollar for a yield of 4.737%, compared with 95 cents earlier in the session for a yield of 4.611%, according to MarketAxess.
“There’s been no place to hide, everything is wider,” said Gary Herbert, global high-yield portfolio manager at Brandywine Global Investment Management LLC, which oversees $40 billion in fixed-income assets. “You’ve had unorthodox policy, and it’s time to remove it.”
Corporate-bond exchange-traded funds also showed losses after the Fed statement was released. The iShares iBoxx $ Investment Grade Corporate Bond Fund fell 1.42% on the day.
John Majoros, managing director at Wasmer, Schroeder & Co., said the corporate-bond market felt weaker, but there wasn’t a sense of panic. “This would not be among the top 50 bad days that I’ve seen,” he said.
Meanwhile, futures prices on CME Group Inc.’s 30-day fed-funds futures contract showed that just after the Fed’s statement, the market was expecting a 67% probability of a rate increase in January 2015, compared with 51% a few minutes before the statement.
Frank Friedman, the chief financial officer of Deloitte LLP, said: “I think most companies would trade off moderate rate increases for a better economy.”
Mary Talbutt, portfolio manager and trader at the Bryn Mawr Trust Co., which manages more than $6.5 billion, said the market selloff was “an overreaction, so I went out and spent some money.” Ms. Talbutt said she bought five- and 10-year Treasurys.
–Carolyn Cui, Al Yoon and Vipal Monga contributed to this article.
Write to Katy Burne at katy.burne@dowjones.com and Mike Cherney atmike.cherney@dowjones.com
No comments:
Post a Comment