Bond Yields Surge Past 8% on Sales Report : Market Overview

* Treasury bond yields rocketed after the release of a stronger-than-expected retail sales report that was seen as further evidence that the economy is rebounding.

The yield on the Treasury’s bellwether 30-year bond jumped to 8.04% from 7.95% Wednesday.

* Stocks closed mostly lower in broad-based selling that belied the small drops in most key indexes.

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The bond market had one of its worst days in months: The price of the Treasury’s bellwether 30-year bond plunged 29/32 point, or about $9 per $1,000. The new yield of 8.04% marked the first time since Nov. 6 that the bond’s yield closed above the 8% mark.

Traders dumped bonds after the government said February retail sales rose 1.3%, the first time sales have risen more than 1% for two consecutive months since 1985.

With the economy strengthening, many investors now believe that the Federal Reserve is likely to keep interest rates level, rather than drop them further.

So bond owners who had hoped for additional capital gains in bonds this year--if market interest rates had continued to fall--see little point in hanging on.

Until those sellers are flushed out of the market, bond yields may continue to inch up, experts say.

Still, Kevin Flanagan, economist at Dean Witter Reynolds, said that although the 30-year T-bond yield topped 8%, “it didn’t crash through that level in any meaningful fashion.” That could indicate the selling is peaking, he said.

The fed funds rate, the rate on overnight loans between banks, was quoted at 3.94%, up from 3.75% Wednesday.

Stocks

Stocks were broadly lower, partly a result of money leaving the market to buy bonds, analysts said.

“With bonds trading at 8%, that gives some competition to the dividend yields on stocks,” said Ned Collins, executive vice president at Daiwa Securities.

The Dow Jones industrial average, which fell 22.36 points Wednesday, closed unchanged at 3,208.63. But in the broader market, declining issues outnumbered advances by 8 to 5 on the New York Stock Exchange.

Big Board volume continued to shrink, at 180.31 million shares versus 186.38 million Wednesday.

The market continues to be torn by fear of higher interest rates on one end and relief that the economy is recovering on the other. But analysts say the dominance of stock losers over winners shows that in the short run, most investors are choosing to step away from the market and see where interest rates settle.

Among the market highlights:

* The market’s confusion showed in the Dow index stocks. Stocks of some economy-sensitive companies rose, including International Paper, up 5/8 to 73 3/8; GM, up 1/2 to 37 7/8, and IBM, up 1 3/8 to 89 1/8.

Meanwhile, some high-priced growth stocks that are most sensitive to competition from bond yields fell. Disney slid 1 3/8 to 147 1/4, and Merck lost 2 7/8 to 147 1/2.

* The retail sales report left retailers mixed. Gap rose 1 7/8 to 44 3/4 after an analyst at Goldman Sachs repeated a buy recommendation. Wal Mart rose 1/2 at 52 7/8, and Home Depot added 3/4 to 62.

But Dayton Hudson plunged 5 5/8 to 61 1/4 after reporting lower quarterly earnings.

* Schlumberger gained 2 1/8 at 57 after an analyst issued a favorable report on the oil services company.

Oil stocks in general were higher. They too could be helped by a rebounding economy. Arco rose 1 5/8 to 101 7/8, Exxon added 1 1/8 to 56 1/2, and Texaco rose 1 1/8 to 57 5/8.

Overseas, stocks continued the recent downward trend. Tokyo’s Nikkei average lost 30.26 points to 20,561.88. And at midday today, the Nikkei was off another 392.82 points to 20,169.06--nearing the critical 20,000 mark.

On the London Stock Exchange, the Financial Times 100-share average slid 29.1 points to end at 2,493.3. In Frankfurt, the DAX average lost 15.92 points to 1,727.50.

In Mexico City, the Bolsa index slumped 33.95 points, or 1.9%, to 1,762.59.

Currency

The dollar rallied against major currencies after the February retail sales report sounded a bullish note on the U.S. economy.

But traders remain nervous after some central banks intervened in the market earlier this week to stop the dollar’s advance.

The dollar ended the day in New York at 134.25 yen, up from Wednesday’s 133.40. It began the year at 124.80 yen.

The dollar also jumped to 1.670 German marks from 1.664.

Commodities

Gold futures prices sagged well below $350 an ounce amid fading expectations for either stronger inflation or higher gold prices.

Silver and platinum also fell sharply despite signs of an improving U.S. economy--ordinarily a constructive sign for those markets.

Gold for April delivery fell $3.40 on New York’s Comex to $348 an ounce, a new 4 1/2-year low. March silver dropped 6.1 cents to $4.09.

Meanwhile, April platinum fell $3.30 on the New York Merc to $360.10 an ounce.

Elsewhere, light, sweet crude oil for April delivery rose 33 cents to $18.83 a barrel on the New York Merc in what traders described as mostly technical buying.