Bond Yields Plunge on Heels of Jobless Report
U.S. Treasury bond prices jumped Friday after the release of the Labor Department’s September unemployment report, sending the yield on the benchmark long bond to the lowest level in 4 1/2 years.
The same report did little to encourage the stock market. The Dow Jones industrial average dropped 23.03 points, or 0.8%, to 2,961.76.
The Labor Department reported that the jobless rate fell to 6.7% last month from 6.8% in August. But it also said there was little new hiring in an economy trying to recover from recession.
Bond traders had hoped that the report would prompt the Federal Reserve to cut interest rates Friday, continuing the central bank’s recent string of cuts. It did not, but many still expect the Fed to move in a matter of weeks to help the flagging economy.
The price of the Treasury’s key 30-year bond climbed 23/32 point, or $7.19 per $1,000 in face amount. Its yield, which moves inversely from price, fell to 7.78% from 7.84% late Thursday.
According to Fed data, that is the lowest yield since March 27, 1987, when the bond closed at 7.64%.
The government said only 24,000 non-farm jobs were added last month, down from a revised 77,000 jobs added in August. The 24,000 figure was below the expectations of many economists and was seen as a sign of continued economic weakness.
Yields on shorter-term bonds also plunged on Friday, as investors rushed to lock in yields across the board, figuring that lower interest rates are inevitable now.
The federal funds rate, the interest on overnight loans between banks, was quoted at 5%, down from 5.125% Thursday.
Stocks
Stocks held their ground reasonably well throughout the day until a late selloff. Analysts said they could find no single explanation for the last-minute stampede.
Declining issues outpaced advances by more than 4 to 3 on the New York Stock Exchange. Big Board volume came to an estimated 164.10 million shares, down from Thursday’s 174.39.
“The (economic) data was more or less mixed,” said Robert Walberg, analyst at MMS International. “It didn’t really clarify anything for anybody. I think the market is in for continued weakness for the next one or two weeks.”
A. C. Moore, analyst at Argus Investment Management, said: “I think this is a very sluggish, elusive recovery where the Fed is likely to be reasonably accommodative.”
Moore noted that investors were also wary about the outcome of earnings reports and added, “Investors are on edge because it’s October,” typically a bearish month for stocks.
Among the market highlights:
* Retailers were particularly weak on worries about the economy. Circuit City fell 1 7/8 to 23 1/8 after it said same-store sales fell 4% in September. Other retailers losing ground included May Department Stores, off 1 1/2 to 52; Sears, down 1 1/4 to 37; Home Depot, off 1 5/8 to 53 1/4, and Gap, down 1 1/4 to 41 5/8.
* American Express dropped 1 3/8 to 21 5/8 on continued concern about the company’s performance.
* Software firm Legent jumped 2 7/8 to 32 1/2 after it said fourth-quarter earnings will be 50 cents a share, which would be above analyst estimates. The news helped stabilize recently battered technology stocks.
* CBI Industries, a steel firm, gained 1 1/8 to 28 3/4. Shearson upgraded its rating and Kidder Peabody repeated a “buy” opinion.
* Biotech giant Amgen slipped 5/8 to 52 7/8. Its chief rival, Genetics Institute, said it is possible it could learn early next week if the Supreme Court will hear its request to overturn a ruling in a patent suit favoring Amgen. Genetics Institute gained 3/4 to 39 1/2.
Another biotech company, La Jolla-based Agouron Pharmaceuticals, gained 1 3/4 to 20 3/4 after saying it will offer 2 million new shares of stock to raise capital.
Overseas, Tokyo’s 225-share Nikkei average fell 114.54 points to close at 24,596.90, a fall of 372.57 on the week.
German shares ended a sluggish session a touch lower. Frankfurt’s 30-share DAX average ended 5.59 points lower at 1,601.73.
In London, the Financial Times 100-share average ended 1.0 point lower at 2,624.6.
Currency
The dollar got a boost from the unemployment report, but it was the Japanese yen that dominated trading.
The yen continued to climb following indications that the Japanese want their currency to strengthen in order to offset trade surpluses with several key trading partners.
The dollar fell against the yen, piercing the 130-yen benchmark in domestic dealings to settle at its lowest level against the Japanese currency since Feb. 16.
In New York, the dollar closed at 129.90 yen, down from 130.60 yen on Thursday.
The dollar advanced against other currencies, however. Traders who had been expecting a particularly negative jobless report were forced to buy dollars after the government announced the jobless rate actually improved slightly last month.
In New York, the dollar slipped to 1.678 German marks from Thursday’s close of 1.664 marks.
Commodities
Gold futures prices rose for a fifth straight day, turning higher late in the session on New York’s Commodity Exchange after a Soviet official said his country had no plans to sell from its gold reserves.
Gold for delivery in October finished $1.30 higher at $359 an ounce, bringing the gain for the week to $9.90. December silver ended at $4.17 an ounce, down 4.8 cents. The contract traded as low as $4.13 during the session.
