Investors Sell Safe Bets in Anticipation of Return to Economic Growth
June 05 2020 - 10:29AM
Dow Jones News
By Amrith Ramkumar
U.S. government bond yields surged and gold prices tumbled after
Friday's better-than-expected jobs report, the latest sign that
investors are wagering on brighter days ahead for the world
economy.
The heavy selling of gold and Treasurys -- which fall in price
as yields rise -- marks a major reversal in financial markets. For
months, investors had favored these haven investments as the
coronavirus devastated the world economy and unemployment soared.
Gold and Treasurys held gains even as stocks surged, a signal that
many remained skeptical about the equity rally.
Analysts say that trend is shifting, with investors selling
their safer assets and moving more money into stocks. As major
indexes surged Friday, the yield on the benchmark 10-year U.S.
Treasury note rose to 0.926%, according to Tradeweb, up from 0.818%
a day earlier. The 10-year yield, which helps set borrowing costs
on everything from auto loans to mortgage rates, has risen to its
highest level since late March.
Most heavily traded gold futures, meanwhile, slid 2.7% to
$1,680.40 a troy ounce, heading for a big weekly decline and
falling further below their 7 1/2 year high from earlier in the
year.
"I'm seeing a big move toward risk," said George Gero, managing
director at RBC Wealth Management. Global investors "don't want to
be left behind in the rally," lifting stocks and hurting havens, he
added.
Friday's swings came after May hiring data showed U.S. employers
unexpectedly added jobs last month, a sign that the labor market is
recovering from its shutdown earlier in the year caused by
coronavirus lockdowns.
Unemployment soared in March and April, but many investors are
now anticipating a swift economic recovery. They expect historic
stimulus measures by the world's central banks and governments to
aid the rebound in growth. The European Central Bank said Thursday
it would scale up its bond-buying programs until June 2021, and
investors expect the Federal Reserve to keep interest rates near
zero. The Fed's next meeting is slated for next week.
In another sign traders expect an economic recovery, the average
annual inflation rate investors expect over the next 10 years --
measured by the gap between the yields of 10-year U.S. government
debt and Treasury inflation-protected securities of similar
maturity -- rose Friday to 1.267%, according to Tradeweb. The
so-called breakeven rate had fallen to around 0.5% at one point in
March.
Friday's jobs data caught many analysts off guard, with
consensus expectations showing projections of 8 million jobs lost
last month. Now, some analysts expect the rally in riskier areas of
the market to continue.
"This release will certainly add momentum to the 'V-shaped
recovery' theme witnessed in markets of late," said Adam
Crisafulli, founder of market-intelligence firm Vital
Knowledge.
--Julia-Ambra Verlaine and Sam Goldfarb contributed to this
article.
Write to Amrith Ramkumar at amrith.ramkumar@wsj.com
(END) Dow Jones Newswires
June 05, 2020 10:14 ET (14:14 GMT)
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