New York – Stocks skidded lower today, as rising bond yields cemented the belief on Wall Street that the Federal Reserve won’t lower interest rates anytime soon.
High rates make mortgages more expensive for home buyers, and could slow down corporate deal-making. Surging takeover activity had helped boost the stock market to record levels until a week ago, when the benchmark 10-year Treasury note’s yield passed 5 percent and began unnerving investors.
Investors kept their eye on the 10-year yield, which was at 5.21 percent in midday trading – up from 5.16 percent late Monday, but still below 5.25 percent, a level it has not traded above consistently since 2002.
Government bond prices, which have been weakening worldwide, have dropped sharply as in the United States as inflation levels remain above the Federal Reserve’s comfort level and as mortgage originators, who use Treasurys to hedge exposure to interest rate moves before selling the loans, sell their bond holdings. Later, the government’s sale of $8 billion in new 10-year notes will test investors’ willingness to re-enter the bond market and take advantage of low prices.
As yields, which move in the opposite direction from bond prices, keep rising, the stock market has sold off.
“It’s partially an excuse to take profits, but there are also some legitimate concerns that if bond yields get high enough, they will present an attractive alternative to stocks, and that higher interest rates will reduce private equity activity,” said Edward Yardeni, president of Yardeni Research Inc.
In midday trading, the Dow Jones industrial average fell 57.30, or 0.43 percent, to 13,367.66, after retreating by as many as 104 points before drawing in bargain buyers. The blue-chip index is trading about 300 points below its record close of 13,676.32, reached June 4.
The broader stock indexes also declined. The Standard & Poor’s 500 index fell 6.29, or 0.42 percent, to 1,502.83, and the Nasdaq composite index dropped 10.74, or 0.42 percent, to 2,561.41.
Stocks weakened in the absence of fresh economic data today, as investors awaited Wednesday’s retail sales, Thursday’s Producer Price Index and Friday’s Consumer Price Index. The PPI and CPI are closely watched inflation gauges.
