Treasuries Rise to Seven-Month High, US Stocks Sink

(Bond Market Update for May 14th, 2012) Treasuries advanced, pushing 10-year yields down to a seven-month low amid the ongoing political circus in Greece that continues to elude the formation of a coalition government. Sentiments weakened further after German Chancellor Angela Merkel’s party suffered a setback in an election in the nation’s most populous state, spooking the global markets.

Treasury Bonds advanced for the second straight day with the spread between two-year US debt and swap-rates on similar maturities widened the most since Jan. Yield on the benchmark 10-year maturities dropped 5 basis points to 1.79 percent, after touching the lowest level since Oct. 4. The spread between two and 30-year maturity bonds narrowed to 2.68 percent, the least since Jan.

Bond Funds were also up on the day with the iShares Barclays 20 Year Treasury Bond ETF (TLT) added $1.67, or 1.4 percent, to end at $121.17, while the Vanguard Total Bond Market ETF (BND) climbed 15 cents, or 0.18 percent to close at $84.10.

US stocks closed lower Monday with all three indexes shedding about one percent over the future of the currency-union in Europe and the safety of American banks. Greece’s political parties failed to stitch up a coalition over the weekend fuelling fears of a re-election that is almost certainly swing in favor of the extreme lefts, accelerating the country’s exit from the currency zone.

The Dow Jones Industrial Average (DJIA) slipped 125.25 points, or one percent, to end at 12,695.35, its lowest since Jan 31. Banking giants JP Morgan (JPM) and Bank of America Corp. (BAC) were the day’s biggest losers, shaving 3.2 percent and 2.6 percent respectively.

The S&P 500 Index (SPX) lost 19.64 points, or 1.5 percent, to 1338.35 with the financials hitting the ground hardest. All the 10 business groups closed lower. Shares of Yahoo Inc rose 2 percent after CEO Scott Thompson resigned on Sunday. Shares of daily-deal company Groupon Inc (GRPN) jumped 18 percent ahead of its Q1 results after the market close.

The tech-heavy NASDAQ Composite Index (COMP) slipped 31.24 points, or 1.1 percent, to close at 2902.58.

For every stock rising, five stocks declined on the NYSE.

Oil prices for June delivery dropped $1.96 to close at a five-month low of $94.17 a barrel.

Gold futures for June delivery tumbled $26.30 to settle at $1,557.70 an ounce.