Out of Treasurys, Into Stocks: Too Soon?

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Treasury yields are again rising this morning, with the 10-year at 2.188 percent, the highest since October. The dollar is at the highest level in over six weeks.

This, of course, is the Federal Reserve’s worst nightmare: An improving economy — with a little inflation from gasoline — igniting a dramatic move out of bonds and into ... stocks and, possibly, corporate bonds. Remember: The Fed has said it would likely keep rates low until 2014.

Speaking of inflation ...did you see the front-page story in The Wall Street Journal on wage hikes across Asia? Good news for the workers, not good news for global inflation.

Dollar up, and stocks down? That is interesting.


1) What happened? The Shanghai Composite Index fell off a cliff in late trading, ending down 2.6 percent. Premier Wen Jiabao said relaxing curbs on the property market would lead to "chaos." At the same time, China said it was relaxing lending standards at three of its main banks.

2) Bottom line on U.S. bank stress tests: Higher payouts from the best banks. A small group of top-tier banks appear to be paying out more than anticipated in dividends and buybacks: American Express at 100 percent payout (dividend plus buyback); JPMorgan Chase and State Street at 90 percent; and US Bancorp at 75 percent.

“This is a little higher than we expected (we had thought the top end of the range would be 70%),” Glen Schorr at Nomura noted. However, Schorr also said the average of the group was only 43 percent.

So the best banks now have dividend yields around 3 percent, but the average is 2 percent; the best banks are shrinking share count 5 percent, but the average is only 2 percent, Schorr notes.

3) Springtime for mortgages? We know homebuying traffic has been strong recently, but today the Mortgage Bankers Association said mortgage applications to purchase homes rose 4.4 percent, up three weeks in a row to an eight-week high.

4) Cliffs Natural Resources rises 3.9 percent pre-market after the iron ore and coal producer yesterday announced it will raise its quarterly dividend by 123 percent from $0.28 to $0.625. The increase will cost the company about $196 million more each year and is part of a new strategy that Cliffs Natural said will shift focus away from big deals while returning more value to shareholders.

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