A surge in Treasury yields rattled Wall Street on Wednesday, forcing stocks to give up early gains and drive down the Dow Jones industrial average more than 140 points. The 10-year Treasury note's yield soared to 5.15 per cent by late afternoon from 5.09 per cent late on Tuesday, reigniting worries among stock investors about high rates thwarting corporate deal-making and the further injuring the limping housing market.
The stock market started reacting violently to Treasury yields two weeks ago when the 10-year yield surged past 5 per cent for the first time since last summer. Wall Street had traded more mildly in recent days as yields retreated from last week's peak of nearly 5.30 per cent, but Wednesday's yield advance stoked fears that they could resume their climb.
"People are watching this 10-year, and it looks like it might want to go back to 5.25," said Todd Leone, managing director of equity trading at Cowen & Co Until last week, the 10-year Treasury yield had not traded consistently above 5.25 per cent since 2002. Furthermore, Leone said, the private equity deal-making wave, which was a main driver for the market for several weeks, seems to have slowed down a bit compared to last month. "The guys are doing a little more homework, and there aren't as many companies to grab up."
Home Depot's $22.5 billion (euro16.76 billion) buyback Wednesday initially lent some support to the market, as did stronger-than-expected quarterly earnings from Morgan Stanley and a retreat in oil prices after the Energy Department reported US crude and gasoline inventories rose last week. But the market eventually caved, after investors decided the positive news wasn't enough to warrant a return to record territory.
The market was also pressured by news of troubles at two of Bear Stearns Cos' hedge funds.