Inflation Report Fuels Bond Prices
Market Overview
Highlights of Tuesday’s market activity, compiled from Times staff and wire reports:
* Treasury bond yields fell sharply on new evidence of low inflation and a successful auction of 10-year notes. The yield on the Treasury’s main 30-year bond dropped to 7.66% from 7.73% Monday.
* Blue chip stocks slumped as investors sold big-name issues, but the broader market was higher, spurred by strong gains in technology stocks.
* Gold prices sank to near seven-year lows on the prospect that inflation will remain tame until late next year or early 1994.
Credit
Strong demand for the 10-year notes during the second day of the government’s quarterly refunding auction catapulted Treasury securities prices higher.
The key bond’s price, which rises when yields fall, gained 25/32 point, or $7.81 per $1,000 in face amount.
Joel Kazis, head of government bond trading at Union Bank of Switzerland, said there was strong investor interest in the auction on top of a successful auction of three-year notes Monday.
“The market has a good tone,” he said.
The average yield on the 10-year Treasury notes was 6.93%, up from 6.49% at the last auction Aug. 12. It was the highest rate since 10-year notes averaged 7.53% May 6.
The notes will carry a coupon interest rate of 6.375%, with each $10,000 in face value selling for $9,608.60.
A total of $11.3 billion in notes were sold out of bids totaling $31.1 billion.
Bond yields fell after the Labor Department said that last month’s gain in its producer price index, which measures inflationary pressures before they reach the consumer, was the best performance since a similar 0.1% rise in August.
The federal funds rate, the interest on overnight loans between banks, was 2.75%, down from 3% Monday.
Stocks
A late round of computer-triggered program selling led to the Dow Jones average closing at its session low of 3,225.47--down 15.40 points.
But advancing issues outnumbered declining ones 5 to 4 on the New York Stock Exchange. Big Board volume came to 223.18 million shares, up from Monday’s 197.56 million.
Among market highlights:
* Mortgage-oriented stocks posted strong gains in reaction to a rally in bonds, whose prices soared as interest rates declined.
Several mortgage stocks hit 52-week highs, including North American Mortgage, which rose 1 to 16 3/4; Federal Home Loan, which added 5/8 to 47; First USA, up 1 1/2 to 17 3/8, and Federal National Mortgage, up 3/8 to 72 7/8.
* Gold stocks plunged as the price of the precious metal hit a seven-year low. Newmont Mining fell 2 3/4 to 40 1/2, Homestake Mining 7/8 to 10 1/2 and Hecla Mining 3/8 to 7 7/8.
Overseas, share prices rose in London. The 100-share Financial Times average advanced 19.2 points to 2,714.6.
Frankfurt’s 30-share DAX average climbed 10.26 points to 1,519.06. Tokyo’s 225-share Nikkei average gained 20.06 points to 16,437.11.
Commodities
In lively trading on New York’s Commodity Exchange, gold tumbled $2.90 to $329.70 an ounce, its lowest since January, 1986.
Speculators sold gold after the release of the producer price report, which persuaded investors that they didn’t need the metal as a hedge against rising prices.
December silver fell 5.7 cents to $3.645 an ounce on the Commodity Exchange.
Light, sweet crude oil fell 15 cents to $20.47 a barrel on the New York Mercantile Exchange.
Currency
The dollar fell against most major currencies.
In New York, it dropped to 1.595 German marks from 1.600 Monday and to 124.20 Japanese yen from 124.25.
Market Roundup, D6
