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End-of-quarter shifts on Wall Street push stocks higher; Treasury bonds get dumped

June 28, 2011 |  3:09 pm

Risk takers were back in control on Wall Street on Tuesday: Stocks and commodities rallied while money poured out of Treasury bonds for a second day, amid hopes for a resolution of the Greek debt crisis and faint signs of life in the U.S. housing market.

With the end of the second quarter drawing near, Tuesday’s market moves also were fueled by end-of-quarter portfolio-squaring by money managers, analysts said. That can skew the markets independent of any news, as managers take profits and/or hunt for securities they believe are cheap.

Nas627 The Dow Jones industrial average rose 145.13 points, or 1.2%, to 12,188.69, the best one-day gain for the blue-chip index since April 20. The Nasdaq composite (charted at left) jumped 1.5% to 2,729.31.

Most major indexes were up between 1% and 1.5%,  although trading volume remained subdued.

Stock traders said markets were buoyed by expectations that Greece’s parliament will approve new austerity measures this week. Also, European banks are in talks to roll over existing Greek bonds into longer-term debt, a move that could lessen the risk of bankruptcy.

In the U.S., a report showing a slight rise in home prices in April over March helped offset another decline in consumer confidence.

Bullish sentiment toward multinational companies was further stoked by Nike Inc.’s better-than-expected earnings report late Monday. Nike jumped $8.28 to $89.90.

Stocks, commodities and other higher-risk assets also benefited as some investors cashed out of Treasury bonds for a second day, driving yields sharply higher. Sellers swarmed in the bond market after demand at the Treasury’s auction of $35 billion in five-year notes was weaker than expected. That followed a relatively poor reception for $35 billion in two-year notes on Monday.

The ebbing of demand may have spooked some bond owners who worry that the Treasury market could struggle without regular purchases by the Federal Reserve, which on Thursday will complete the $600-billion bond-buying program that it launched in November.

2yr628 As Treasuries sold off, yields soared. The yield on the two-year T-note (charted at right) jumped to a one-month high of 0.48% from 0.395% at Monday’s auction. The yield had been 0.33% on Friday.

The 10-year T-note yield surged to 3.03% from 2.93% on Monday.

George Goncalves, an interest-rate analyst at Nomura Securities in New York, said Treasury yields were due for a rebound after sliding relentlessly since mid-April as the global economy has slowed.

Investors “pushed rates a little too low,” Goncalves said. Still, because he thinks the economy will continue to weaken through summer, he doesn’t expect Treasury yields to rocket from current levels. “This is a resetting of yields that lets you come back in,” he said.

The turn in the Treasury market the last two days gave investors an excuse to sell if they’ve been riding the drop in yields (which means rising bond prices) since April.

The bond market faces another test of investor demand on Wednesday, when the Treasury will auction $29 billion in seven-year notes. Bond bulls are hoping the third time is the charm.

-- Tom Petruno


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