U.S. Treasury Yield Surge Boosts Dollar, Makes Gold Less Desirable Investment

U.S. equity markets continued to build on their strong 2018 gains, gold weakened and the U.S. Dollar firmed as investors shifted their focus to economic data, job openings and U.S. Treasury yields

On Tuesday, the U.S. Labor Department released its Job Openings and Labor Turnover Survey (JOLTS). The report showed little change in the number of job openings on the last business day of November. The government report showed the number of openings at 5.9 million.

“Job openings increased in retail trade (+88,000) but decreased in other services (-64,000), transportation, warehousing, and utilities (-60,000), and real estate and rental and leasing (-39,000),” the government report said.

Also on Tuesday, the Treasury Department auctioned $24 billion in 3-year notes at a high yield of 2.08 percent. The bid-to-cover ratio, an indicator of demand, was 3.13.

U.S. Treasury yields rose on Tuesday. This helped make the U.S. Dollar a more desirable asset. The yield on the benchmark 10-year Treasury Note rose roughly 5 basis points to 2.544 percent, while the yield on the 30-year Treasury Bond was higher at 2.886.

Traders showed little reaction to dovish comments from Minneapolis Fed President Neel Kashkari. He reiterated his argument that the nation’s big banks need to keep more cash in reserves. The Fed member sees the capital requirement as a way to prevent a future financial crisis akin to the one that occurred in 2008.

“Basically we need to double the capital requirement of the biggest dozen banks in America,” he said Tuesday.

Kashkari also said the U.S. Federal Reserve should keep interest rates low so that wage gains accelerate and inflation rises.

“Inflation has been low, wage growth has been low, so I’m advocating for lower interest rates to get wages up and to get inflation back to our 2 percent target,” Kashkari said at an event in Minnesota. Kashkari has repeatedly said he wants to see inflation rise before increasing interest rates any further.

Gold

Gold prices retreated on Tuesday after several days of consolidation in reaction to increasing demand for higher risk assets and a surge in U.S. Treasury yields.

Rising optimism over the outlook for U.S. economic growth continued to drive the major stock indexes higher. Investors continued to buy stocks with two hands, sending the S&P 500 and NASDAQ Composite to record highs.

U.S. Treasury yields were also helped by the news that the Bank of Japan tweaked its bond-buying program. This news underpinned the U.S. Dollar, making dollar-denominated gold a less desirable investment.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures rose sharply on Tuesday. WTI crude reached its highest level since December 2014, underpinned by OPEC-led production cuts and expectations of another draw in U.S. crude inventories.