Like a cyclone, the rate move in the global bond market is unsettling everything in its path and leaving a new high-tide mark for credit worldwide.
Selling in world bond markets continued overnight and the yield on the 10-Year temporarily inched up to 5.31%. But for now markets are settling down, and the picture for stocks looks a bit brighter as futures shake off the tug of higher interest rates. European stocks, initially under selling pressure, are turning mixed and Asian markets were also mixed overnight.
Retail sales data for May could help set direction this morning. Traders will also watch the Fed's Beige Book release this afternoon for a sense of where the economy is going.
Wall Street was stung by the bond market's sell off yesterday which resulted in a sharp rise in rates to five-year highs. The 10-year crossed over 5.25% and touched 5.30% late in the day. The Dow swung with rates in sharp up and down moves, finishing the day off 129 points or 1.0%. The Nasdaq tumbled 22 points or 0.9% and the S&P 500 slid 16 or 1.1%.
"Most people on Wall Street have never seen a bear market in credits. They've just never met that kind of animal before. The credit market activity in the U.S. will probably put upward pressure on rates worldwide and that could continue to feed on itself. The German bund has already established its highest yield since November '02," says Rick Santelli, CNBC's bond market expert.
"A credit market selloff can bring with it some very vicious trading. If traders carve out the 10-year yield at 5.40% and then they go back to 5.25%, stocks will rally. But until we figure out what that upper boundary is, stocks are not going to deal with this very well," Santelli says.
An interesting note from Birinyi Associates came in last night. The headline shouts "Bonds = Oversold!" The note says since 1990 there have only been eight other periods when bonds, meaning the long-bond futures contract, have been more oversold. The report says one month after the beginning of the oversold period, bonds continued to move lower, down 1.72% while the S&P was on average flat, off 0.16%.
The Skinny
CNBC pharmaceutical reporter Mike Huckman is in Silver Spring, Md. to attend the FDA's hearing on Sanofi Aventis' diet drug. The FDA advisory committee will review data on rimonabant, a drug that reduces the drive to eat but has some potential side effects, including depression, anxiety and even suicidal thoughts. The drug is sold in Europe under the name Acomplia. In the U.S., it would be called Zimulti.
Pumped Up
Oil is slightly weaker this morning, after falling 62 cents a barrel yesterday to $65.35, continuing its seesaw move through the mid 60s range. Oil is up 2.1% month to date and up 7% for the year. Gasoline meanwhile fell 1.63 cents a gallon yesterday to $2.135, putting it down 5.2% month to date so far. But gasoline prices in the futures market are still up 33% since the beginning of the year. Inventory data is due today, and "Morning Call" will be live at the NYMEX. CNBC's Brian Schactman will report on what a gallon of gas is expected to cost after Labor Day.
Oops
Please pretend you are seeing the following entry for the first time. We incorrectly reported Treasury was to issue its currency report yesterday.
Taking Aim at China
A group of senators today, yes Wednesday, will present a new bill aimed at "misaligned" currency policies. Details will be released this afternoon after the Treasury issues its semi-annual report about currencies. The senators proposing the bill have been outspoken about China's currency policy which they say unfairly gives China an advantage and hurts U.S. workers and exporters. The senators include Charles Schumer, D-NY and Lindsey Graham R-S.C.
