Bond Yields Drop After Auction : Market Overview
Long-term Treasury bond yields tumbled after the government completed its quarterly auction of new 30-year bonds. Investors were also cheered by President-elect Bill Clinton’s assurance that the federal budget deficit will be brought down over time.
* Stock prices bogged down despite the strong bond market and favorable news on employment.
* Silver surged, recouping some of its recent huge losses.
Credit
“The 30-year bond auction was a screaming success,” declared Peter McTeague, a market strategist at Technical Data in Boston.
In the third leg of its $37-billion quarterly auction, the Treasury sold $10.25 billion in 30-year bonds at an average yield of 7.66%. That was the highest auction yield in a year, but about as expected.
The bid-to-cover ratio, a measure of market demand, was 2.49 to 1, well above the 2.11-to-1 average for the last 12 auctions.
The auction results spurred heavy bond buying afterward, driving the yield on the new 30-year issue down to 7.58% late in the day. The yield on existing 30-year bonds was 7.66% Tuesday, the last time bonds traded before the Veterans Day holiday.
Yields on shorter-term bonds also fell, but very short-term securities, such as six-month T-bills, saw their yields remain about even.
Investors’ enthusiasm for longer-term bonds was stoked by Clinton’s promise at a press conference that he will seek to rein in the federal budget deficit once he is sure the economy is improving.
The bond market’s greatest fear has been that the budget deficit will enlarge over the next few years, causing the Treasury to borrow more and thus put upward pressure on interest rates.
Stocks
Wall Street took a breather from its recent rally. The Dow industrials, up 14.86 points Wednesday, lost 0.54 point to 3,239.79.
More important, the red-hot NASDAQ market of smaller stocks stalled after a string of big gains. The NASDAQ composite index eased 0.55 point to 634.37 after rocketing a total of 12.87 points Tuesday and Wednesday.
Still, advancing issues slightly outnumbered losers on both the NASDAQ and New York Stock Exchange. Volume on both markets was about 225 million shares.
Stocks got an initial boost on the signs of a better economy: The government said new claims for jobless benefits fell by 5,000 in the week ended Oct. 31 to 355,000, lowest in more than two years.
But some traders saw that news as reason to cash in chips after stocks’ sharp October rally. “You’re starting to see some profit taking in the (NASDAQ) market that is spreading into the listed area,” said Harry Laubscher, analyst at brokerage Tucker Anthony.
Among the market highlights:
* Insurance stocks were strong, which some traders said reflected optimism about lower interest rates. Broad Inc. jumped 3/4 to 24 3/4, St. Paul gained 1 3/4 to 70 1/2, General Re soared 2 3/4 to 113 3/8, and AIG leaped 2 to 115.
* Drug stocks continued to rebound. Lilly rose 1 3/8 to 63 5/8, Warner-Lambert jumped 1 3/8 to 70 3/4, Merck gained 7/8 to 45 3/4, and Genzyme soared 2 1/4 to 43 1/2.
* Among retailers, Gap jumped 2 3/8 to 33 5/8 despite reporting lower quarterly earnings. Southland grocer Vons added 1 to 24 1/8 on its profit report. But Lands’ End tumbled 5 5/8 to 24 1/4 after warning that Christmas sales could be weak.
Overseas, London stocks rose as banks cut interest rates. The Financial Times 100-share index leaped 29.60 points to 2,726.40. In Frankfurt, the DAX index jumped 23.16 points to 1,535.37, sparked by a rally in Siemens.
In Tokyo, the Nikkei average added 58.78 points to 16,376. And in Hong Kong, the Hang Seng index continued its winning ways, rising 25.08 points to a record 6,447.11.
Other Markets
A surge in silver prices led precious metals higher, extending their recovery from a tailspin that earlier this week took gold to its lowest level since 1986.
On New York’s Commodity Exchange, silver soared 10.8 cents to $3.78 an ounce, and gold rose $1.50 to $333.20 an ounce.
Analysts said the silver rally wasn’t linked to any change in supply-and-demand factors, but was largely because of “short covering” by traders who had correctly foreseen the plunge in prices earlier in the week.
Meanwhile, on the New York Merc, oil futures sagged, extending a monthlong downward trend tied to soft world demand. Light, sweet crude for December fell 26 cents to $20.21 a barrel.
In currency trading in New York, the dollar eased in an uneventful session. It closed at 1.580 German marks, down from Wednesday’s 1.584, and at 123.95 Japanese yen, down from 123.98.
Market Roundup, D6
