NEW YORK U.S. stocks rallied and Treasury yields soared on Tuesday as investors, encouraged by pledges of monetary policy support from Japanese and European central banks, turned away from safe-haven U.S. debt and sought higher returns in riskier assets.
ECB Executive Board member Joerg Asmussen said on Monday the policy would stay as long as necessary. On Tuesday, BOJ board member Ryuzo Miyao said it was vital to keep long- and short-term interest rates stable.
Yields on U.S. Treasuries surged to their highest levels in over a year as prices skidded. A strong consumer confidence report underscored the notion that the Federal Reserve could soon trim its bond-buying program.
"The vicious selling once again materialized after the much-stronger-than-expected consumer confidence report," said Cantor, Fitzgerald Treasury strategist Justin Lederer.
Yields have jumped since Fed Chairman Ben Bernanke said on Wednesday that the U.S. central bank may decide to decrease its bond purchases gradually in the next few policy meetings if data shows the economy is gaining steam.
"The path of least resistance is higher yields," said Sean Simko, portfolio manager at SEI Investments.
Benchmark 10-year notes fell more than a point to 96-7/32 while their yields, which move inversely to price, soared to 2.17 percent from 2.01 percent on Friday. Ten-year yields have surged from 1.61 percent at the beginning of May as optimism about the economy has grown.
Thirty-year bonds fell more than two points in price while their yields rose to 3.33 percent, the highest level since March, and up from 3.18 percent on Friday.
Both the 10-year notes and 30-year bonds are on track for their worst monthly loss since December 2009.
U.S. STOCKS, DOLLAR RECOVER
U.S. stocks recovered from recent weakness, propelling the Dow to finish at yet another record closing high.
The Dow Jones industrial average .DJI gained 106.29 points, or 0.69 percent, to end at a record 15,409.39. The Standard & Poor's 500 Index .SPX rose 10.46 points, or 0.63 percent, to 1,660.06. The Nasdaq Composite Index .IXIC climbed 29.74 points, or 0.86 percent, to close at 3,488.89.
The dollar rebounded against the euro and yen after data on U.S. consumer confidence and home prices suggested the world's largest economy was on a steady road to recovery.
The Fed's stimulus program is viewed as negative for the greenback because it floods the market with dollars.
A measure of U.S. consumer confidence rose in May to its highest level in more than five years. That private-sector report followed data showing single-family home prices rose in March, with their best annual gain in nearly seven years.
Higher Treasury yields have also boosted the appeal of dollar-denominated investments.
DOLLAR RISES AGAINST YEN AND EURO
The U.S. dollar rallied against the euro and yen as the stronger-than-expected U.S. economic data underscored views the Fed could reduce its bond purchases in coming months.
Against the yen, which tumbled broadly, the dollar rose 1.2 percent to 102.09 yen, rebounding from a two-week low of 100.68 set on Friday. The dollar rose to a 4-1/2-year high of 103.73 yen last week.
The euro rose 0.6 percent to 131.24 yen, pulling away from Thursday's trough of 129.94 yen.
The safe-haven Swiss franc fell, down 1.1 percent against the dollar at 0.9740 franc and down 0.6 percent against the euro at 1.2533 francs.
Currencies such as the yen and the Swiss franc, which rose sharply last week after a recent sell-off in stock markets, typically gain in times of financial uncertainty.
The dollar index, which measures the greenback versus a basket of currencies, rose 0.6 percent to 84.172 .DXY.
Gold fell 1 percent as the stock market rally diminished bullion's safe-haven appeal. Strong buying of physical bullion, however, briefly reversed gold's fall.
Spot gold was down 1 percent to $1,380.81 an ounce by 3:25 p.m. EDT, after trading as low as $1,373.14.
U.S. Comex gold futures for June delivery settled down $7.70 at $1,378.90 an ounce.
Among other precious metals, silver was down 1.7 percent to $22.25 an ounce. Platinum rose 0.6 percent to $1,455.74 an ounce, while palladium gained 2.1 percent to $751.22 an ounce.
Brent crude oil rose on increased Middle East risk and as stocks rallied. Brent crude oil for July rose $1.61 to $104.23 per barrel while U.S. crude rose $0.95 to $95.10 per barrel.
The promise of monetary support from the European and Japanese central banks was reinforced as French, German and Italian governments urged action to tackle youth unemployment. Youth unemployment in countries like Greece and Spain has risen to 60 percent.
In Europe, the broad FTSE Eurofirst 300 index .FTEU3 closed up 1.3 percent at 1,246.44, while MSCI's world equity index .MIWD00000PUS rose 0.5 percent, reversing four days of losses.
Japan's Nikkei stock index .N225, which last week reached a 5-1/2-year high before dropping 7.3 percent on Thursday, steadied on Tuesday, ending 1.2 percent higher.