Financial thoughts

Stock prices hurtled lower Monday as anxiety overtook investors on the first trading day since Standard & Poor’s downgraded American debt. The Dow Jones industrials were briefly down more than 600 points.

The Dow fell below 11,000 for the first time since November. The sharp drop extended Wall Street’s almost uninterrupted decline since late July, when the Dow was flirting with 13,000.

Investors worried about the slowing U.S. economy, escalating debt problems threatening Europe and the prospect that fear in the markets would reinforce itself, as it did during the financial crisis in the fall of 2008.

They desperately looked for safe places to put their money and settled on U.S. government debt _ even though those were the targets of the downgrade Friday, when S&P removed the United States from its list of the lowest-risk countries.

The price of Treasurys rose, and yields, which move in the opposite direction from price, fell. The yield on the 10-year Treasury note fell to 2.33 percent from 2.57 percent Friday.

“This is largely a flight to safety,” said Thomas Simons, money market economist with Jefferies & Co. “The bond market is really trading off of what’s going on in the stock market.”

Gold set a new record, trading for more than $1,700 an ounce.

The stock market plunged at the opening bell, with the Dow down 250 points in minutes. Stocks steadily fell for most of the rest of the morning and early afternoon, and the Dow was briefly down 600 at about 2:30 p.m.

In afternoon trading, the Dow was down 400 points, or 3.4 percent to 11,079. The S&P 500 was down 51 points, or 4.2 percent, to 1,149. The Nasdaq was down 114 points, or 4.5 percent, to 2,417.

Stock markets in Asia began Monday’s global rout. The main stock index fell almost 4 percent in South Korea and more than 2 percent in Japan. European markets opened later and fell, too, with Germany down 5 percent and France 4.7 percent.

In the U.S., stocks fell even though Moody’s, another major credit rating angecy, stood by its top rating of Aaa for the United States. It said it could downgrade the U.S. if it cut its deficit, “but it is early to conclude that such measures will not be forthcoming.”

Financial markets also did not appear comforted by an afternoon statement by President Barack Obama, who said Washington needs more “common sense and compromise” to tame its debt.

“Markets will rise and fall,” he said. “But this is the United States of America. No matter what some agency may say, we’ve always been and always will be a triple-A country.”

S&P, in its downgrade, criticized dysfunction in the American political system. The downgrade wasn’t a total surprise but came when investors were already feeling nervous about the U.S. economy and European debt, among other problems.

Last week, the Dow Jones industrial average fell almost 700 points. That was its biggest point loss since October 2008, during the financial crisis. Counting Monday, the Dow has dropped in 10 of the last 12 trading days.

Crude oil, natural gas and other commodities fell on worries that a weaker global economy will mean less demand. Oil fell $3.47 to $83.41 per barrel.

S&P on Monday downgraded mortgage lenders Fannie Mae, Freddie Mac and other agencies linked to long-term U.S. debt. Fannie and Freddie own or guarantee about half of all U.S. mortgages. Their downgrade could mean higher mortgage rates.

Worries about weaker profits that could result from a slowing economy have slammed the financial industry since late July. As a group, financial stocks in the S&P 500 index fell 4.9 percent on Monday to their lowest level since July 2009.

Bank of America fell 13.7 percent after AIG filed suit against the bank same day payday loans. The insurer alleged Bank of America sold it overvalued mortgage-backed securities. The bank denied the allegations. Its stock has dropped by nearly 50 percent this year.

Stocks in other industries whose profits are closely tied to the strength of the economy also fell sharply. Energy stocks in the S&P 500 fell 4 percent, for example.

The smallest losses came in safer industries such as consumer staples whose profits tend to be steadier, regardless of the economy. Even in a bad economy people will still buy things like toothpaste and bread.

The Vix index, a measure of fear among investors, shot up 26 percent to its highest level since May 2010. The index shows how worried investors are that the S&P 500 will drop over the next 30 days. It does this by measuring prices for stock options that investors can buy to help protect their portfolios.

Investors are worried that Spain or Italy could become the next European country to be unable to pay its debt. The European Central Bank said it will buy Italian and Spanish bonds in hopes of helping the countries avert a possible default.

Seeking to avert panic spreading across financial markets, the finance ministers and central bankers of the Group of 20 industrial and developing nations issued a joint statement Monday saying they were committed to taking all necessary measures to support financial stability and growth.

“We will remain in close contact throughout the coming weeks and cooperate as appropriate, ready to take action to ensure financial stability and liquidity in financial markets,” they said.

Worries about the U.S. economic recovery have been building since the government said that economic growth was far weaker in the first half of 2011 than economists expected.

The economy grew at a 1.3 percent annual rate from April through June, below economists’ expectations. It expanded at just a 0.4 percent rate in the first quarter. The first half of 2011 was the slowest since the end of the recession.

Then reports showed that the manufacturing and services industries barely grew in July. Job growth was better than economists expected last month. But the 117,000 jobs created in July were still well below the 215,000 that employers added between February and April, on average.

The Federal Reserve will meet on Tuesday, but economists don’t expect much to come out of the meeting. The central bank’s key interest rate is already at a record of nearly zero, where it has been since 2008.

The Fed has also already said that it plans to keep rates low for “an extended period.” Chairman Ben Bernanke said last month that the Fed could step in to help the economy if it further weakened.

Fears about a weaker U.S. economy have overshadowed profit growth that companies have reported for the second quarter. For the 441 companies in the S&P 500 that have already reported, earnings rose 12 percent in the second quarter from a year earlier. Revenue growth has also topped 10 percent for the first time in a year.

Tyson Foods rose 0.8 percent after it reported stronger profit than analysts expected. The largest U.S. meat company said its net income fell 21 percent because of higher grain costs, but analysts expected a steeper drop.

Tyson was one of just five stocks in the S&P 500 to rise on Monday. The biggest gain came from Newmont Mining Corp., which benefited from higher prices for the gold that it produces.

Verizon Communications Inc. fell 3.9 percent after it was unable to come to terms with 45,000 workers on health care costs, pensions and other issues.

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The tax credit compromise unveiled last week by Missouri lawmakers would do many things.

It would set up a fund to help high-tech startups grow. It would create new incentives to draw data centers and big-time college sports to Missouri payday loan lenders. And it could boost the state treasury by as much as $1.5 billion over the next 15 years, providing money to pay for roads or schools

So much for fears that U.S. companies might stall out in the economy’s soft patch.

Corporate profits are coming in better than expected so far in second-quarter earnings season despite concerns about the potential for trouble ahead.

Strong showings from blue-chip companies such as Apple, Coca-Cola and McDonald’s have put the quarter on track to set a new record for operating earnings.

“The corporate sector’s in great shape,” says Joseph LaVorgna, chief U.S. economist at Deutsche Bank. “The economy is a little healthier than we thought it was.”

Aside from companies’ continuing stubbornness about hiring more workers, the early results are good news for investors and anyone worried that the debt-limit standoff in Washington or the financial crisis in Europe could inflict serious damage.

Consumers’ willingness to spend on fast food, electronic gadgets and other items has helped fuel better-than-expected quarterly results. Among the standouts:

_ Apple Inc. more than doubled its profit to $7.31 billion on an 82 percent jump in revenue, further testimony to the runaway popularity of the iPhone and iPad.

_ Coca-Cola Co. more than tripled net income to $5.77 billion as the world’s largest drink maker increased its strength in emerging markets, such as Latin America, India and China, while sales held stable in the U.S. and Europe.

_ Harley-Davidson Inc. more than doubled its profit to $191 million, posting an increase in U.S. motorcycle sales for the first time since 2006 and expanding its market share overseas.

_ McDonald’s Corp. increased net income 15 percent to $1.4 billion on a 16 percent jump in revenue, attracting more customers for its broadening menu and array of coffee drinks even as it raised prices.

Companies in several other industries also blew past Wall Street’s expectations this week, including credit card issuer American Express Co., toy maker Hasbro Inc., oil services company Halliburton Co., computer company IBM Corp., chipmaker Intel Corp. and health insurer UnitedHealth Group Inc.

All told, 148 companies in the Standard & Poor’s 500 index have reported earnings and 73 percent have beaten the expectations of Wall Street. That’s somewhat ahead of the typical pace of two-thirds that surpass estimates.

Companies that had reported as of Friday had $24.52 per share in operating earnings _ profits before subtracting interest and tax expenses _ according to S&P senior index analyst Howard Silverblatt. The record of $24.06 per share was set in the second quarter of 2007.

Wall Street analysts forecast the next two quarters to be even better at $25.30 per share in the third quarter and $26.47 per share in the fourth. That’s assuming the economy isn’t dragged down by the deficit-reduction impasse or another problem.

Coming out of the recession, corporations first reported explosive earnings growth early last year. The pace has slowed, but it’s still going. At the current rate, second-quarter earnings would be 17 percent better than a year ago.

It hasn’t all been smooth going, as Caterpillar Inc.’s big earnings shortfall Friday underscored. The world’s largest maker of construction and mining equipment took a hit because of the earthquake and tsunami disaster in Japan.

Other stumbles this week came from drugmaker Johnson & Johnson, appliance maker Whirlpool Corp. and big airline companies weighed down by higher fuel costs: AMR Corp. and US Airways Group Inc.

CEOs and chief financial executives also have been notably cautious in their comments about coming quarters, according to Quincy Krosby, financial market strategist with Prudential Financial.

“A little bit of uncertainty has crept into companies’ guidance,” Krosby says. “”You’re hearing a lot of `It’s challenging,’ `It’s difficult,’ `We think we’re going to do well but we’re not sure.’” That hedging language, she says, has to do with the possibility for further trouble to develop from the ongoing economic and political dramas in Europe and Washington.

Yet the stock market itself hasn’t shown much sign of concern. The S&P 500 rose 2.2 percent this week after having been down 2 percent during the previous two weeks.

That shows that investors aren’t viewing companies’ positive showings skeptically, says Rob Stein, founder and senior portfolio manager for Chicago-based Astor Asset Management.

“Earnings season has been at the higher end of expectations,” he says. “More importantly, it’s been well-received by the Street.”

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Aircraft leasing company Air Lease Corporation says it has signed a commitment to order 50 of Airbus’ new A320neo aircraft, including options for another 14.

The A320neo is Airbus’ single-aisle mid-range jet engineered for fuel savings.

The Los Angeles-based company also made a firm order Monday for 11 Airbus 330s and one A321.

Excluding the options, the deal is valued at $6 billion at list prices, Airbus said.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

LE BOURGET, France (AP) _ GE Capital Aviation Services has ordered 60 A320neo jets, a version of the workhorse jet revamped to be more fuel efficient, Airbus said Monday.

The European planemaker announced the deal at the Paris Air Show, where the search for a cheaper and cleaner way to fly is emerging as a major theme.

The deal would be worth about $5.5 billion at list prices, though buyers often strike discounts.

With airlines squeezed by skyrocketing fuel prices, Airbus has booked 390 orders and commitments for the A320neo since its commercial launch last December, even though the plane won’t be available until 2015 cheap credit report.

Airbus also announced an order for four of its A330-300 aircraft from Saudi Arabian airlines. The wide-bodied, twin-engined medium to long range A330-300 has a list price of euro223 million ($318 million). The Saudi airline already has 8 of the 330-300s in service.

Swedish airline group SAS ordered another 30 of Airbus’ A320neo aircraft for around 18 billion kronor ($2.8 billion) at list prices as part of an effort to renew its fleet.

SAS’s order includes an option to buy an additional 11 airplanes.

Delivery of the aircraft will start in the second half of 2016 and should be completed during 2019.

The acquisition is part of SAS’s move to concentrate its short-and medium distance fleet into two types of aircraft: Airbus A320 and Boeing’s 737NG.

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South Korea’s current-account surplus widened to a four-month high in April as record exports offset a rise in dividend payments to foreign shareholders.

The surplus was $1.88 billion, compared with a revised $1.33 billion in March, the Bank of Korea said in a statement in Seoul today. The current account is the broadest measure of trade, tracking goods, services and investment income.

South Korea’s exports have climbed at a double-digit pace since November 2009 even as the won has risen, with the government boosting its estimate for sales of ships made by companies such as Hyundai Heavy Industries Co. The stronger won may help ease inflation pressure, which the Bank of Korea has tried to contain by raising interest rates twice this year.

“Exports are remarkably strong, adding upward pressure on the won,” June Park, an economist at Woori Investment & Securities Co. in Seoul, said before the release. “The won will likely rise further but only gradually, so it won’t deter the central bank from raising interest rates next month.”

The won rose 1.2 percent to 1,088.40 per dollar at the 3 p.m. close in Seoul yesterday, according to data compiled by Bloomberg. The Kospi share index gained 2.8 percent.

Rising Exports

Total exports on a customs-cleared basis rose 25.1 percent last month from a year earlier, compared with a revised 28 no faxing pay day loans.8 percent gain in March, according to today’s statement. Imports climbed 23.9 percent after expanding a revised 27.6 percent in March. Overseas shipments probably rose 28.7 percent this month, according to the median forecast of six economists surveyed by Bloomberg News.

Hyundai Heavy Industries and other shipbuilders won a combined $12.8 billion new orders for the first three months of this year, according to economy ministry data released last month. The ministry boosted its estimate for this year’s ship orders to $51.7 billion from $50.5 billion.

The central bank held off boosting borrowing costs for two months after raising the benchmark interest rate by a quarter of a percentage point in both January and March, with inflation exceeding its target in each the past four months. Governor Kim Choong Soo’s policy board meets June 10 to decide whether to raise rates for the third time this year.

The surplus on traded goods widened to $3.93 billion last month from a revised $2.75 billion in March, today’s report showed. The services deficit, which measures the flow of travel, transport costs and royalties, was $179 million in April, compared with revised $328 million in March.

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Dominique Strauss-Kahn, the embattled managing director of International Monetary Fund, resigned Wednesday, saying he wanted to devote “all his energy” to battle the sexual assault charges he faces in New York.

The IMF’s executive board released a letter from the French executive Wednesday in which he denied the allegations lodged against him but said that with “sadness” he felt he must resign. He said that he was thinking of his family and that he wanted to protect the IMF.

“It is with infinite sadness that I feel compelled today to present to the executive board my resignation from my post of managing director of the IMF,” the five-paragraph letter said. “I think at this time first of my wife _ whom I love more than anything _ of my children, of my family, of my friends. I think also of my colleagues at the Fund. Together we have accomplished such great things over the last three years and more.

“To all, I want to say that I deny with the greatest possible firmness all of the allegations that have been made against me. I want to protect this institution which I have served with honor and devotion, and especially _ especially _ I want to devote all my strength, all my time and all my energy to proving my innocence.”

Strauss-Kahn, who faced increasing international pressure to quit, announced his decision on the eve of a bail hearing Thursday that could have spelled the end of his leadership of the IMF anyway. He faces charges of assaulting a maid at a New York hotel.

The maid, a 32-year-old immigrant from the West African nation of Guinea, told police that the 62-year-old Strauss-Kahn came out of the bathroom naked, chased her down, forced her to perform oral sex on him and tried to remove her underwear before she broke free and fled the room.

If a New York judge denies bail for Strauss-Kahn or imposes highly restrictive conditions on his freedom, the IMF’s executive board would have expected him to resign, two senior IMF officials said earlier Wednesday. If he didn’t, the board could have removed him on the grounds that he couldn’t lead the IMF from a jail cell or far from its Washington headquarters.

The two officials spoke on condition of anonymity because of the highly sensitive situation. Strauss-Kahn is jailed in New York City. Attempts to reach his lawyers were unsuccessful.

The IMF’s statement late Wednesday said the process of choosing a new leader would begin, but in the meantime John Lipsky would remain acting managing director.

One of the IMF officials said earlier Wednesday that the fund had yet to speak with Strauss-Kahn since his weekend arrest. There were no procedures for suspending or placing its leader on extended leave.

While Strauss-Kahn remains confined to a Rikers Island jail cell, the dividing lines are sharpening in a dispute over whether someone from a rich or an emerging economy should lead the IMF after his exit.

Europe is aggressively staking its traditional claim to the top position. But fast-growing nations such as China, Brazil and South Africa are trying to break Europe’s grip on an organization empowered to direct billions of dollars to stabilize the global economy.

Europeans have led the IMF since its inception after World War II. Americans have occupied both the No. 2 position at the IMF and the top post at its sister institution, the World Bank. The World Bank funds projects in developing countries.

Europe has “an abundance of highly qualified candidates” to lead the IMF, German government spokesman Christoph Steegmans declared Wednesday. He also noted the relevance of having a European at the helm, to deal with the debt problems that have racked the eurozone.

Steegmans didn’t name any potential candidates or say whether Germany might propose one make quick cash. But German Chancellor Angela Merkel, along with the finance ministers of Sweden and the Netherlands, have pressed Europe’s case for the IMF leadership.

Still, developing nations see Europe’s stranglehold on the position as increasingly out of touch with the world economy. China’s is now the world’s second-largest economy. India’s and Brazil’s have cracked the top 10. Many emerging economies are sitting on stockpiles of cash and have become forces of financial stability, while rich countries have become weighed down by debt.

“We must establish meritocracy, so that the person leading the IMF is selected for their merits and not for being European,” Brazilian Finance Minister Guido Mantega said, calling for a “new criteria” for leadership. “You can have a competent European … but you can have a representative from an emerging nation who is competent as well.”

China suggested it was time to shake things up at the IMF, with Foreign Ministry spokeswoman Jiang Yu saying the leadership “should be based on fairness, transparency and merit.”

And South African Finance Minister Pravin Gordhan spoke in stronger terms. He said the new director should come from an emerging economy, to “bring a new perspective that will ensure that the interests of all countries, both developed and developing, are fully reflected in the operations and policies of the IMF.”

It remains unclear which way the United States is leaning. Treasury Secretary Timothy Geithner had said Tuesday that Strauss-Kahn is “obviously not in a position” to run the IMF, escalating pressure on the 62-year-old economist.

The United States has a major say in determining who will head the fund, in part because it holds the largest number of votes. The prevailing view among analysts and former Treasury officials appears to be that Washington would back a strong European candidate who could be approved in a smooth process.

“It’s kind of not our fight,” said Phillip Swagel, a Treasury official in the George W. Bush administration. “There are very good reasons to have a forceful, prominent European head of IMF.”

One such candidate would be French Finance Minister Christine Lagarde.

Other Europeans touted as possibilities are Germany’s former central bank chief Axel Weber; the head of Europe’s bailout fund, Klaus Regling; and Peer Steinbrueck, a former German finance minister.

Candidates from elsewhere include Turkey’s former finance minister, Kemal Dervis; Singapore’s finance chief Tharman Shanmugaratnam; and Indian economist Montek Singh Ahluwalia.

More possibilities include Trevor Manuel, South Africa’s former finance minister; Mexico’s central bank governor, Agustin Carstens; and former Brazilian central bank president Arminio Fraga.

Strauss-Kahn was removed from a plane Saturday at John F. Kennedy International Airport, moments before he was to fly to Paris. He was supposed to meet Sunday with German Chancellor Angela Merkel to discuss aid to debt-laden Greece and then join EU finance ministers in Brussels on Monday and Tuesday.

Strauss-Kahn’s flight from Washington was paid for by the IMF, with an approved stopover in New York, the official said. That meant his New York visit was in a private capacity. He was not accompanied by security personnel or any IMF aides.

The official said Strauss-Kahn’s security team was supposed to meet him at Paris’ Charles de Gaulle airport. His assistants were already in Europe.

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“Thor” nailed down the No. 1 spot at the box office again.

Paramount’s 3-D superhero film starring Chris Hemsworth as Marvel’s hammer-toting god of thunder earned $34.5 million in its second weekend, according to studio estimates Sunday.

That brings the total haul of “Thor” to $119.2 million, though not quite as impressive as fellow comic book hero “Iron Man 2,” which earned $211.2 million by its second weekend the same time last year.

“`Thor’ had a really great playing field to work on for its second weekend in theaters,” said Paul Dergarabedian, box office analyst for Hollywood.com. “For a big-budget Marvel Comics film that opened very solidly to drop only 48 percent indicates some very strong word of mouth. I think Kenneth Branagh being the director really brought a lot to the table.”

Universal’s “Bridesmaids,” the raunchy comedy starring Kristen Wiig as a down-on-her-luck maid of honor, debuted above expectations in second place with $24.4 million. Nikki Rocco, head of distribution for Universal, attributed the movie’s good reviews and word of mouth to wide audience appeal: 67 percent of the audience was female; 33 percent male.

“That’s pretty good considering this is a picture titled `Bridesmaids,’” said Rocco.

The next adversary for “Thor” arrives next week with the opening of “Pirates of the Caribbean: On Stranger Tides,” the fourth film in the blockbuster Disney franchise starring Johnny Depp as mischievous pirate Capt. Jack Sparrow. On Memorial Day weekend come the sequels “The Hangover Part II” from Warner Bros paydayloan. and “Kung Fu Panda 2″ from Paramount.

“The cavalry is about to arrive,” said Dergarabedian. “We’re poised for a strong Memorial Day weekend. We’re down year-to-date about 13 percent on revenue. A month ago, we were down 20 percent. We’re making up ground, and this weekend was down only 3 percent, which is impressive considering the strength of `Iron Man 2′ in its second weekend a year ago.”

Universal’s car-racing sequel “Fast Five” with Dwayne Johnson shifted into the third position with $19.5 million in its third weekend in theaters.

Sony’s 3-D vampire-hunting graphic novel adaptation “Priest” opened in fourth place with $14.5 million, while Fox’s animated bird tale “Rio” landed at fifth place with $8 million in its fifth weekend in theaters.

Estimated ticket sales for Friday through Sunday at U.S. and Canadian theaters, according to Hollywood.com. Final figures will be released Monday.

1. “Thor,” $34.5 million.

2. “Bridesmaids,” $24.4 million.

3. “Fast Five,” $19.5 million.

4. “Priest,” $14.5 million.

5. “Rio,” $8 million.

6. “Jumping the Broom,” $7.3 million.

7. “Something Borrowed,” $7 million.

8. “Water for Elephants,” $4.1 million.

9. “Tyler Perry’s Madea’s Big Happy Family,” $2.2 million.

10. “Soul Surfer,” $1.8 million.

___

Online:

http://www.hollywood.com/boxoffice

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Share of working-age adults who live near a transit stop:

St. Louis: 57%

Average: 69%

Median wait for a bus or train at rush hour St. Louis: 11.2 minutes

Average: 10.1 minutes

Share of jobs reachable via transit in 90 minutes

St. Louis: 24%

Average: 30%

Source: Brookings Institution

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Canadian Tire Corp. (TSX: CTC.A) saw first-quarter profits rise 13.3 per cent to $58.4 million in what the automotive, outdoor gear and sporting goods retailer described as a somewhat disappointing period, thanks to inclement weather.

The Toronto-based company said its earnings amounted to 71 cents per share, up from $51.6 million or 63 cents per share in the same period a year earlier.

Canadian Tire, which is on the cusp of a huge merger with sporting goods chain Forzani Group (TSX: FGL) after making a $771-million bid for the owner of Sport Chek, said its retail sales were up 3.7 per cent, and consolidated revenues grew 4.6 per cent.

“Our revenue performance in automotive, apparel and financial services met our expectations for the quarter and we are pleased with our overall consolidated earnings and growth,” president and CEO Stephen Wetmore said in a statement.

“We saw strong retail sales in January and February, however, unseasonable weather in March, and continuing into April, has reduced our customer traffic and sales in seasonal product categories. We are a strong business, executing well on all our key programs, so it’s unfortunate to see how our seasonal business impacted our results this quarter.”

Analysts polled by Thomson Reuters had predicted average earnings per share of 72 cents.

Canadian Tire will now own the No. 1 and No. 2 sporting goods retail chains in the country after it announced Monday that it was buying Forzani.

It said buying the owner of Sport Chek and Athletes World would help it reach a younger demographic of potential customers who prefer to shop at Forzani’s locations in malls. Together, Canadian Tire will run about 1,000 retail locations covering a wide array of products from gardening tools to golf tees to winter tires.

Canadian Tire’s automotive sales have been hit by weaker consumer demand, more competition and a deteriorating reputation in a business that once built the brand. The retailer underwent a major overhaul both in its executive suite and as the result of shifting its separate units under one corporate umbrella to eliminate duplicate costs.

That overhaul came just months after the company announced it was refocusing on its core automotive and retail businesses instead of other divisions like financial services and clothing sales at Mark’s Work Wearhouse.

Part of that strategy was to revamp its store design, transforming layouts into “smart stores” — which direct customers more easily around the stores and highlight the automotive division.

Canadian Tire employs more than 58,000 people with 485 stores across the country.

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Treasuries rose for a third week, generating the biggest monthly return since August, as cooling economic growth and the Federal Reserve’s commitment to maintain stimulus encouraged demand for the safety of government debt.

Two-year note yields dropped the most in a month since January 2010 as policy makers said after a meeting that a $600 billion debt-purchase program will continue through June. Fed Chairman Ben S. Bernanke said he was unsure when monetary stimulus will unwind. Employers added fewer jobs in April than in March, a report next week is forecast to show.

“The lack of growth is supporting the Treasury market,” said Siddharth Joshi, an interest-rate strategist in New York at Citigroup Inc., one of the 20 primary dealers that trade with the U.S. central bank. “The Fed expressed very cautious sentiment toward growth and made it clear they aren’t going to do anything until sustainable growth has picked up.”

Two-year note yields fell five basis points this week, or 0.05 percentage point, to 0.60 percent in New York, according to Bloomberg Bond Trader prices. It was the lowest since March 21. The yields dropped 22 basis points in April, the most since sliding 32 basis points in January 2010.

Ten-year note yields declined 10 basis points to 3.29 percent yesterday, from 3.39 percent on April 22, and fell 18 basis points in April in the first monthly decrease since tumbling 44 basis points in August. They reached 3.28 percent, the least since March 23.

Monthly Return

Treasuries returned 1.1 percent this month, the first monthly gain since January and the biggest since August, according to the Bank of America Merrill Lynch Treasury Master index. The Standard & Poor’s 500 Index of stocks advanced 2.9 percent in April.

Bonds climbed on April 28 as Commerce Department data showed U.S. gross domestic product slowed to a 1.8 percent annual pace in the first quarter, from a 3.1 percent pace in the fourth. The Institute for Supply Management-Chicago Inc. said yesterday its business barometer declined to 67.6 this month, more than economists forecast, from 70.6 in March.

Initial claims for jobless benefits unexpectedly increased last week, Labor Department data showed on April 28.

U.S. nonfarm payrolls added 190,000 workers in April after a gain of 216,000 the prior month, according to the median estimate of economists in a Bloomberg News survey before the Labor Department reports the data on May 6.

‘Not Bouncing Back’

“Growth is not bouncing back as much as economists thought,” said Gary Pollack, head of fixed-income trading at a Deutsche Bank AG Private Wealth Management group in New York that oversees $12 billion. “Fiscal tightening, curtailing of industrial production, subdued inflationary pressures and a Fed that is on hold for a long time have left investors comfortable to go out on the curve and buy bonds.”

A bond market measure of inflation expectations the Fed uses to help determine monetary policy was at 2.96 percentage points, compared with a three-month high of 3.13 percent on April 15 and a 2011 low of 2.77 percentage points on Feb. 16.

The five-year forward break-even rate projects what the pace of consumer price increases may be beginning in 2016. It averaged 2.78 percentage points over the past five years.

“The market is battling the notion that there are inflationary risks in the system with the reality that growth has been slower than even the Fed thought it would be,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “It doesn’t mean inflation risks are off the table, but slower growth is an offset.”

No Prediction

Bernanke indicated during a press conference after a Fed meeting ended on April 27 the central bank will maintain record monetary stimulus once U.S. debt purchases end in June, reinvesting principal payments from its securities holdings, while the need to cap inflation means further easing is unlikely. He wouldn’t predict when stimulus would end.

The central bank said in November it would buy Treasuries through the middle of 2011 to spur economic growth. It purchased $22.6 billion of them this week as part of the program.

“The broader economy is in a moderate recovery,” Bernanke said yesterday in a speech in Arlington, Virginia. “But our economy is far from where we would like it to be, and many people and neighborhoods are in danger of being left behind.”

The likelihood policy makers will raise the target rate for overnight lending between banks at their March 2012 meeting decreased to 44 percent yesterday, from 61 percent a month ago, Fed funds futures showed.

The central bank has kept the benchmark rate at zero to 0.25 percent since December 2008 to support the economy.

Bill Rates

Six-month bill rates slid to a record-low 0.0895 percent on April 28. Bill rates have fallen as the Treasury cut issuance on behalf of a Fed program as the federal debt ceiling approaches.

President Barack Obama has offered the outlines of a program to reduce the nation’s debt by $4 trillion over 12 years through a combination of spending cuts and tax increases.

“Our deficits are too high,” Treasury Secretary Timothy F. Geithner said April 28 in Detroit. “They will not be solved by future economic growth, and left unaddressed they will hurt future economic growth.”

The Treasury auctioned $99 billion in two-, five- and seven-year notes this week. It sold $29 billion in seven-year debt on April 28 at a yield of 2.712 percent, $35 billion of five-year securities April 27 at a 2.124 percent yield and $35 billion of two-year notes April 26 at a yield of 0.673 percent.

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