Wall Street declined overnight, pushing the Dow Jones Industrial Average down from yesterday's record-high close, as investors weighed signs of improvement in the US economy with concern about the Federal Reserve's potential decrease of monetary stimulus.
US Treasuries gained today, as recent increases in yields bolstered the appeal of fixed-income securities. Yields on the benchmark 10-year bond dropped four basis points to 2.13 per cent.
"This is an opportunity to put money to work at levels that are 60 to 70 basis points higher than they were a month ago," Thomas di Galoma, senior vice president of fixed-income rates trading at ED&F Man Capital Markets in New York, told Bloomberg News. "The perception is the economy will remain on the weak side, and people don't want to chase the equity market."
In late afternoon trading in New York, the Dow Jones Industrial Average shed 0.54 per cent, while the Standard & Poor's 500 Index dropped 0.39 per cent and the Nasdaq Composite Index fell 0.37 per cent.
Reminding investors that the Fed might not begin tapering its bond-buying program just yet, Fed Boston President Eric Rosengren today said he believed "that the benefits of this accommodative monetary policy program still significantly outweigh the costs."
"While some improvement in labour markets has been achieved, it does not yet constitute progress sufficient to merit halting the asset purchase program," Rosengren told the Economic Club of Minnesota in Minneapolis.
He said he expects the unemployment rate will be down to 7.25 per cent "or a bit lower" by the end of the year.
"I believe the Fed should continue the purchase program until we see more sustained improvement in labour markets and have greater confidence that the economic recovery is sufficiently self-sustaining to yield continued progress in reducing the still very high unemployment rate," the Fed official said.
Indeed, the International Monetary Fund downgraded its growth forecast for China, the world's second-largest economy. China's economy will grow 7.75 per cent this year and next, the IMF said. That's down from an April forecast of 8 per cent for 2013 and 8.2 per cent in 2014.
And in Germany unemployment increased more than expected. The number of jobless Germans rose 21,000 in May, compared with expectations for an increase of 5,000 in polls by Reuters and Bloomberg.
Europe's benchmark Stoxx 600 Index sank 1.9 per cent. Elsewhere, Germany's DAX fell 1.7 per cent, while France's CAC 40 lost 1.9 per cent and the UK's FTSE 100 weakened 2 per cent.