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Surging yield on 10-year notes affects stocks

Stocks closed mixed Tuesday after enthusiasm over a deal to extend tax cuts faded.

Bond prices fell sharply as traders anticipated the tax cuts would lead to ballooning budget deficits. The yield on the 10-year Treasury note jumped to its highest level since June 22.

Stocks soared this morning due to the plan agreed to between President Barack Obama and Republican leaders to extend the Bush-era tax cuts, which were due to expire at the end of the year.

"The deal in Washington is a big deal," said Kim Caughey Forrest, equity research analyst at Fort Pitt Capital Group. "Investors really do like certainty, and they really do like certainty around taxes."

But the rally fizzled late as the yield on the 10-year note hit its highest level since June and debt prices fell sharply. The Dow Jones industrial average fell 3.03 points, or 0.03 percent, to close at 11,359.16.

The broader Standard & Poor's 500 index rose 0.63, or 0.05 percent, to 1,223.75. The S&P closed within 2 points of its 2010 high reached on Nov. 5.

The Nasdaq composite index rose 3.57, or 0.1 percent, to 2,598.49.

Treasury prices fell sharply, sending their yields higher. The yield on the 10-year Treasury note rose to 3.13 percent from 2.93 percent late Monday. The yield on the 10-year note is a widely used benchmark for interest rates on loans including mortgages.

Citigroup Inc. rose 3.8 percent to $4.62 after the government said late Monday it reached a deal to sell its remaining stake in the bank for a $12 billion profit. Nicor Inc. jumped 4.3 percent to $48.79 after the natural gas distributor said it had agreed to be acquired by AGL Resources Inc. for about $2.38 billion in cash and stock.

Shares of New York Times Co. rose 4 percent to $9.76 after the newspaper publisher said declines in print advertising sales are slowing and expenses are falling.

Investors also were encouraged by news out of Europe. European stock markets rose after finance ministers from the 16 nations that use the euro did not rule out increasing their $1 trillion bailout fund. Ireland also passed a budget with steep tax hikes aimed at slashing its deficit.

The dollar was up 0.5 percent against an index of six other currencies. It had been down as much as 0.4 percent earlier in the day before recouping its losses by midday.

Rising stocks were even with declining ones on the New York Stock Exchange. Volume was 1.6 billion shares.

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