Bonds prices fell sharply Tuesday, sending long-term interest rates to their highest level in seven months, after the Federal Reserve said it would continue its efforts to lift the economy.
Stocks edged higher after retail sales rose for the fifth straight month in November and a survey showed that large companies intend to hire more workers. The Dow Jones industrial average closed at its highest level of the year.
The Federal Reserve said it would keep up its $600 billion stimulus program because the economy isn't strong enough to bring down unemployment on its own. The yield on the benchmark 10-year Treasury note jumped to its highest level since May 17.
Jeffery Kleintop, chief market strategist at LPL Financial, said some investors were selling Treasurys out of disappointment that the Fed didn't increase the amount of bonds it would buy. There had been speculation the Fed would do so to offset some of the additional borrowing that will be needed to fund the nearly $900 billion cost of a tax-cut deal brokered by the White House and Congressional Republicans.
The heavy selling drove prices down and pushed the yield on the 10-year Treasury note up to 3.45 percent from 3.28 percent the day before. The jump of 17 basis points means the yield increased 5.2 percent - a huge move for one day. It's the same as the Dow Jones industrial average rising almost 600 points in a day. The higher yield will increase borrowing costs for the government, businesses and consumers.
Bond prices have been falling and yields rising over the past two months as investors raise their expectations for economic growth and inflation, both of which diminish the appeal of low-risk fixed income investments. The 10-year yield was as low as 2.39 percent on Oct. 7.
Stock indexes rose modestly. The Dow Jones industrial average rose 47.98, or 0.4 percent, to 11,476.54. Its previous high for the year of 11,444.08 came Nov. 5. AT&T Co. led the 30 stocks in the Dow with a 2 percent gain.
The S&P 500 rose 1.13, or 0.1 percent, to 1,241.59. The Nasdaq composite index rose 2.81, or 0.1 percent, to 2,627.72.
A survey from the Business Roundtable, an association of CEOs of big U.S. companies, showed that 45 percent of executives say they expect to add workers over the next six months. That's the highest percentage since the survey began in late 2002.
"The economy is beginning to feel more stable than it has been," said Anthony Conroy, managing director and head trader for BNY ConvergEx Group.
In corporate news, Best Buy fell 14.8 percent to $35.52 after the retailer said its third-quarter net income fell more than expected as it lost sales of TVs and mobile devices to competitors. The company also cut its full-year outlook.
Falling stocks outpaced rising ones by a narrow margin on the New York Stock Exchange. Consolidated volume was 4.2 billion shares.
- fixed income investments
- Treasury note
- Nasdaq composite index
- basis points
- Stock indexes
- interest rates
- net income
- the New York Stock Exchange
- LPL Financial