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Utilities Gain despite Rise in Treasury Yields

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Utilities gain

Out of the 40 utilities we track, 30 gained during the week ending August 7. The Utility Select Sector SPDR ETF (XLU) gained 0.9% even as the broader market SPDR S&P 500 ETF (SPY) fell 1.2%.

Treasury yields showed a mixed performance with short- and medium-term yields rising during the week, while ultra-long-term (20 and 30 years) yields fell. Treasury yields are key indicators for utilities at the moment, as they indicate market perception about the interest rate hike.

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It is widely believed that the Fed will start raising interest rates in September after keeping them near zero for seven years. Utilities benefitted greatly from the low interest rates, as they took an opportunity to undertake capital expenditure at low rates. Moreover, investors flocked to utilities, which offered attractive dividend yields when market rates were low.

Top gainers

Allete (ALE), based in Duluth, Minnesota, gained 6.0% to end at $51.21 with a dividend yield of 3.89%. The company reported substantial increase in revenues and net income in 2Q15.

Hawaiian Electric (HE) gained 3.5% to end the week at $30.99 with a 4% dividend yield. Consolidated Edison (ED) rose 2.5%, as the company reported higher net income in spite of lower revenues. ITC Holdings (ITC) gained 2.4% to end the week at $34.58 with a dividend yield of 1.88%.

Top losers

Houston-based Dynegy fell 12.8% to end the week at $22.72 with a market capitalization of $2.9 billion, as the stock saw increased volatility amid the upcoming results of wholesale capacity auctions. DYN generates over 70% of its revenues through the wholesale market.

NRG Energy (NRG), based in Princeton, New Jersey, dropped 12.7%, as the company missed 2Q15 earnings estimates. Houston-based Calpine (CPN) lost 7.2%, as it partially gave up its gains from last Friday.

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