An ugly Treasury bond auction has people thinking twice about the world’s hunger for U.S. debt.
First, the scoreboard:
- Dow: 16,550.9 (+32.4, +0.2%)
- S&P 500: 1,875.6 (-2.5, -0.1%)
- Nasdaq: 4,051.5, (-16.1, -0.4%)
And now the top stories:
- In the absence of a whole lot of news, a Treasury bond auction got a bit of attention today. Treasury sold $US16 billion worth of bonds at a yield of 3.440%, which was much higher than the 3.392% expected by analysts. The bid-to-cover ratio, a measure of demand, was low at 2.09, the lowest level since August 2011. Analysts were looking for a ratio of closer to 2.36. Currently, the 30-year Treasury bond yield is at around 3.43%, up from an intraday low of 3.37%.
- Ironically, all of this comes just hours after Federal Reserve Chair Janet Yellen told the Senate Budget Committee that demand for Treasury securities remains strong. “Interest rates are unlikely to begin rising until we are in a strong economic recovery,” she said.
- In other interest rate news, the average 30-year fixed mortgage rate fell to 4.21%, the lowest level since November 7, 2013. “Mortgage rates continued moving down following the decline in 10-year Treasury yields after a dismal report on real GDP growth in the first quarter,” said Freddie Mac’s Frank Nothaft.
- Initial weekly jobless claims fell to 319,000 from 345,000 a week ago. This was lower than the 325,000 expected by economists. “While jobless claims have been volatile dating back to late 2013, on a y/y basis both initial (down 4.9%) and continuing (down 10.6%) claims have fallen, suggesting that the separations side of the labour market has continued to recover,” said Barclays’ Cooper Howes.
- Tesla was one of the worst-performing stocks in the market, tumbling 11% today. Yesterday, the company announced Q1 adjusted earnings of $US0.12 per share, which was higher than the $US0.07 expected by analysts surveyed by Bloomberg. However, guidance was a bit light. Management expects gross margins to “increase slightly” from Q1 to Q2 and be “marginally profitable in Q2 on a non-GAAP basis.” Here’s CEO Elon Musk: “We still plan to invest $US650-850 million for the year in capital expenditures for increased production capacity, growth in our store, service center and Supercharger footprints, Model X and S development and start of Gigafactory construction. With all these initiatives, we expect to be slightly free cash flow negative in 2014, before considering the equity required for leasing.”
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