The Wall Street Journal - 26.11.2019

THE WALL STREET JOURNAL. **** Tuesday, November 26, 2019 |B11

S&P 500

S&P 500 consumer discretionary sector

9:30 noon 4

Index performance Monday

Source: FactSet

1.5

0

0.5

1.0

% S&P 500 information technology sector

Yield on the 10-year Treasury note

Source: Tullett Prebon

2.0

1.4

1.6

1.8

%

Sept. Oct. Nov.

Monday 1.763%

AUCTION RESULTS
Here are the results of Monday's Treasury auctions.
All bids are awarded at a single price at the market-
clearing yield. Rates are determined by the difference
between that price and the face value.
13-WEEK AND 26-WEEK BILLS
13-Week 26-Week
Applications $129,888,495,000 $106,644,025,700
Accepted bids $45,002,728,500 $39,002,447,700
" noncomp $898,820,400 $638,612,300
" foreign noncomp $200,000,000 $100,000,000
Auction price (rate) 99.610000 99.205611
(1.560%) (1.580%)
Coupon equivalent 1.592% 1.619%
Bids at clearing yield accepted 29.27% 43.54%
Cusip number 912796SD2 912796TW9
Both issues are dated Nov. 29, 2019. The 13-week bills
mature on Feb. 27, 2020; the 26-week bills mature on
May 28, 2020.
TWO-YEAR NOTES
Applications $108,197,783,100
Accepted bids $43,175,557,500
" noncompetitively $198,795,200
" foreign noncompetitively $0
Auction price (rate) 99.802444
(1.601%)
Interest rate 1.500%
Bids at clearing yield accepted 39.14%
Cusip number 912828YT1
The notes, dated Dec. 2, 2019, mature on Nov. 30,
2021.

Yields on U.S. government
bonds fell, extending a decline
that has all but wiped out the
jump in Treasury yields during
the first half of November.
The recent drop comes as
share prices are rising, show-
ing a divergence in risk per-
ception between the bond and
stock markets. Bond yields fall
when their prices rise, and de-
mand for Treasurys tends to
decline when stocks are rising
and investors see less need for
the relative safety of govern-
ment debt.
The bull run that is pushing
up equity prices to records
might be what is
bolstering the
Treasury market,
said Jim Vogel,
interest-rate strategist at FHN
Financial. When stock valua-
tions reach lofty heights at
year-end, fund managers look
for ways to lock in their gains
and that “creates a need to
buy more insurance by pur-
chasing longer-dated Trea-
surys,” he said.
The yield on the benchmark
10-year Treasury note declined
to 1.763% from 1.772% on Fri-
day and a recent high of
1.942% on Nov. 8.
The 10-year yield rose as
high as 1.790% early Monday—
after China announced intellec-
tual-property protections and
bolstered hopes of a compro-
mise in the U.S.-Chinese trade
conflict—before sliding when
U.S. markets opened.
The rally in Treasurys could
reflect year-end rebalancing
by portfolio managers, but it
might also indicate the intel-
lectual-property announce-
ment won’t be enough to fore-
stall tariff increases scheduled
for next month, said John
Roberts, interest-rate strate-
gist at NatWest Markets.
Rising demand for medium-
and long-term Treasury bonds
increases the risk that long-
term yields will fall below
those of short-term debt, a
phenomenon known as an in-
verted yield curve that often
presages a decline in economic
activity. The difference be-
tween 10-year bond yields and
two-year yields declined to
0.145 percentage point from
0.269 point on Nov. 8, accord-
ingtodatafromTradeweb.
The decline in government-
bond rates is boosting bond is-
suance by corporations look-
ing to lock in low debt costs.
The sale of new high-yield
bonds in the U.S. hit a recent
record of $17.6 billion in the
week ended Nov. 22, up from
$12.55 billion the previous
week and around three times
the weekly average of $5.35
billion this year, according to
data from LevFin Insights, a
Fitch Solutions service. It was
the highest weekly total in at
least three years.

BYMATTWIRZ

Treasury

Yields Fall,

As Equities

Gain Steam

CREDIT
MARKETS

hit in early September. They are still up 14% for the year. Hopes for a trade deal between the world’s two largest economies have hurt gold and other haven assets by brighten- ing investors’ outlook for global growth in 2020. Some analysts expect a trade accord and lower interest rates to buoy corporate profits, mak- ing stocks and other risky in- vestments more attractive. Reports Monday that the two sides are close to a phase- one deal followed Sunday reports that China’s government

called for faster penalties and punishments for patent infringement, a sign that China may be willing to compromise on an important issue in the trade discussions. In another negative, many analysts expect the Federal Re- serve to stop lowering interest rates following three cuts ear- lier in the year. Anticipation of stable rates has helped boost government-bond yields, mak- ing Treasurys a more attractive bet for yield-seeking investors than gold, which offers no re- turns simply for holding it.

Reports that the U.S. and China were closing in on an initial trade accord represented the latest blow to gold’s 2019 rally, another threat to investors who had piled into bullion this year. Most-active gold futures fell 0.5% to $1,456.90 a troy ounce on the Comex division of the New York Mercantile Exchange, dropping more than $100, or 6.6%, below their six-year highs

BYAMRITHRAMKUMAR

Gold Futures Tumble on Trade Hope

COMMODITIES

The latest bitcoin euphoria has faded. When Chinese leader Xi Jin- ping touted blockchain technology in October, the price of bitcoin surged, searches for blockchain on one of China’s biggest search engines soared and shares of related companies jumped. Bitcoin slumped below $7,000 over the weekend, dropping to a six-month low as China reaffirmed its tough stance on companies involved in cryptocurrency trading and fundraising. That wiped out the gains last month—when bitcoin briefly topped $10,000—which followed Mr. Xi’s statement that China should speed up research into blockchain, the open-ledger system behind cryptocurrencies. Late Monday in New York, bitcoin was trading at $7,236.25. Though China’s central bank is developing its own digital currency, the government is continuing a crackdown that begin in 2017, when it imposed a broad ban on local exchanges and fundraising for digital currencies. On Friday, the Shanghai headquarters of the People’s Bank of China and an arm of the local government pledged to continue to target exchanges, and warned investors not to confuse blockchain technology with virtual currencies. The two authorities have shut down 13 initial-coin-of- fering platforms and 10 cryptocurrency exchanges since

late 2017. In a joint statement Friday, they said they noticed speculation in cryptocurrencies had surged again during the recent promotion of blockchain technology. They said they would shut down companies that market cryptocurrency exchanges registered outside China to mainland investors, or that introduce Chinese custom- ers to these trading venues. In recent years, speculation in cryptocurrencies has posed risks for investors, the statement said, adding that activities have included illegal fundraising and fraud, which can disrupt financial markets. “China clamping down again on crypto kind of spooked the market,” said John Patrick Mullin, co- founder and managing director

at Tritaurian Capital, a bou- tique investment bank for companies investing in blockchain and digital assets. Maxine Ryan, co-founder of Bitspark, a money-transfer company that helps people cash in and out of cryptocurrencies, said the country had started to take a decisive role in bitcoin- market fluctuations. “China really is what the market sees now as the main indicator moving crypto prices,” she said. Ms. Ryan, a longtime bitcoin holder, said she has taken a small short position—that is, a bet against—bitcoin over the past weeks as prices have declined. She said the latest an- nouncements out of China “caught everybody by sur- prise” but also show how important the country is for the overall cryptocurrency market. Last week, crypto news and research site the Block re- ported Chinese authorities had raided the local offices ofBi- nance, one of the world’s largest cryptocurrency exchanges by trading volume. Binance de- nied the report. “The Binance team is a global movement consisting of people working in a decentral- ized manner wherever they are in the world. Binance has no fixed offices in Shanghai or China, so it makes no sense [to say] that police raided on any offices and shut them down,” a Binance spokeswoman said. She said the company works closely with governments to protect users and has high re- spect for regulations meant to combat scams or frauds.

BYSTEVENRUSSOLILLO ANDSTELLAYIFANXIE

Bitcoin Falls as China’s

Blockchain Frenzy Eases

MARKETS

year on uncertainty about the trade negotiations. The Dow Jones Industrial Average rose 190.85 points, or 0.7%, to 28066.47. The S&P 500 added 23.35 points, or 0.8%, to 3133.64 and the Nasdaq Com- posite advanced 112.60 points, or 1.3%, to 8632.49. All three indexes set fresh closing highs. Barring any unexpected news, traders expect the week to be relatively quiet. The stock and bond markets will be closed Thursday for Thanksgiving Day and then shut early Friday. Shares of technology companies were among the biggest gainers in the U.S., withAd- vanced Micro Devicesrising 64 cents, or 1.6%, to $39.79 and Nvidiaadding $10.32, or 4.9%, to $221.21. The British pound rose 0.5% against the dollar as the Con- servative Party maintained a lead in weekend opinion polls after unveiling its manifesto for the Dec. 12 general elections. The pan-continental Stoxx Europe 600 Index rose 1%. At midday in Tokyo Tuesday, the Nikkei was up 0.6%.

Stocks rose to records at the start of a holiday-shortened week, buoyed by a rally in technology shares. Stocks around the world got a boost after Chinese officials called for speeding up the in- troduction of penalties and pu- nitive action for infringement of patents and copyrights in a document released Sunday. The U.S. has indicated it wants clearer assurances that China will follow through on the commit- ments it has made on the issue, and on others such as agricul- tural purchases, before negotia- tors will travel to Beijing for a new round of talks. The statement from China showed officials there are willing to make concessions and to “come to the table and keep talking,” said Lewis Grant, a portfolio manager at Hermès Investment Management. That is a good sign for risk- ier assets like stocks, which have swung throughout the

BYCAITLINOSTROFF ANDAKANEOTANI

Tech Sector Propels

Indexes to Records

MONDAY’S MARKETS

Conditions for stock picking are improving. After months of frequently trading together, shares of big U.S. companies have begun to diverge, more often rising or falling on fundamentals or company-specific news. The average three-month rolling correlation among the stocks and sectors in the S&P 500 has been trending down- ward throughout November, according to data from Goldman Sachs. Among individual stocks, the measure dropped to 0.23 at the end of last week—and re- mained there Monday—from 0.42 on Oct. 30. That is below the five-year average of 0.30 and the lowest level since May 10—before stocks sold off sharply on wor- ries about an escalating trade war. Correlations measure how stocks move in relation to one another. A correlation of 1 would mean that stocks or sectors were moving perfectly together; a correlation of zero would show no relationship be-

tween their movements; and a correlation of -1 would mean they were moving in opposite directions. “Essentially, the correlation really reflects a fraction of how much of the news coming out is about the economy as a whole, as opposed to about individual assets,” said Robert Korajczyk, a professor at Northwestern University’s Kellogg School of Management. Stocks tend to move together when investors are fo- cused on macroeconomic factors like those that captivated their attention for much of the early autumn. But in recent weeks, trade tensions between the U.S. and China have some- what eased, the Federal Re- serve has indicated it is likely done cutting interest rates for now, and improving economic data has squashed fears of an imminent recession. Those factors have helped push the S&P 500 up 3.2% in November and the three major stock indexes to a series of new highs. Much of the recent rally has been powered by economi- cally sensitive stocks such as

those of financial and industrial companies, suggesting that investors are gaining confidence about the health of the economy. “There’s a differentiation going on now between assets that have exposure to cyclical growth and pricing power and away from companies that just

don’t grow but pay a reliable dividend,” said Barry Bannister, head of institutional equity strategy at the brokerage arm of Stifel Financial. The easing tensions in the market have also allowed investors to refocus on comparing company fundamentals, open-

ing a window for stock picking rather than just betting that the market will go up or down. “It becomes increasingly a stock picker’s market, where fundamentals matter more,” said John Linehan, portfolio manager and chief investment officer of equity at T. Rowe Price. In recent years, active investing has lost ground to pas- sive strategies in which funds try to match, rather than beat, the market. As individual stocks have begun to move more independently, correlations among the S&P 500’s 11 sectors have also declined. Although some investors point to the drop in correlations as an opportunity for active managers, Tobias Lev- kovich, chief U.S. equity strategist at Citigroup, sounded a cautionary note. “There’s nothing inherently wrong with being a stock picker, but there is reason to worry when almost everyone thinks they are good at choos- ing the winning equities when past evidence suggests other- wise,” he said.

BYKARENLANGLEY

Big U.S. Stocks Begin to Diverge

Five-year sector average

CorrelationsamongS&P500stocksandsectorshavebeguntofall. Three-month rolling average correlations

Source: Goldman Sachs

Note: A correlation of zero shows no relationship between stock movements.

0.8

0

0.2

0.4

0.6

Jan. March June Sept. Nov.

S&P500stocks

S&P500sectors

Five-year stock average

The central bank is developing its own digital currency and has reaffirmed its tough stance on crypto.

ALEX HOFFORD/EPA/SHUTTERSTOCK

CURRENCIES

XiJinpingtouts blockchain

Bitcoin price, daily

Source: CoinDesk

$10,000

6,500

7,000

7,500

8,000

8,500

9,000

9,500

Oct. Nov.

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The Wall Street Journal - 26.11.2019

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