Dollar Hits a Low Against Yen; Bond Yields Slip to 7%

The U.S. dollar fell to an all-time low against the surging Japanese yen Friday, while the bond market continued its rally, pushing the yield on 30-year Treasury bond down to 7%, the lowest level since the government began issuing the 30-year securities in 1977.

The yield, a key measure of long-term interest rates, finished Thursday at 7.017%.

The dollar’s drop against the yen came after U.S. Treasury Secretary Lloyd Bentsen said he wanted the Japanese currency to rise even further to help cut Tokyo’s huge trade surplus with the United States.

“I’d like to see a stronger yen,” Bentsen told the National Press Club.

Stocks, meanwhile, ended a raucous week with a gain Friday, helped by gains in energy and financial stocks. The Dow Jones average of 30 industrials rose 19.99 points to 3,322.18.

Most of the action in domestic foreign exchange trading focused on the yen, dealers said. The dollar finished the U.S. session slightly higher against the German mark and mixed against other major currencies.

Currency dealers dumped dollars and snapped up yen after Bentsen said he would like to see a stronger yen, which would help reduce overseas demand for Japanese exports by making them more expensive. That would cut into Japan’s relentlessly high trade surplus, a chronic sore point in Japan-U.S. relations.

Bentsen didn’t dwell on the subject in an appearance at the National Press Club in Washington, but currency dealers interpreted his remarks as a policy the Administration will pursue aggressively.

By the end of trading in New York, the dollar had been hammered down to 118.23 yen from 119.15 yen on Thursday. Currency dealers said it was the lowest level for the dollar against the yen in the post-World War II era. The previous low of 118.60 yen occurred Sept. 30, 1992.

Federal Reserve Board Chairman Alan Greenspan’s contention on Friday that deficit reduction would not create a significant drag on the economy also helped lift the dollar against the German mark.

The dollar finished in New York at 1.6386 marks, up from 1.6330 Thursday. The British pound firmed at $1.4540 in late New York trading from $1.4463 Thursday.

Stocks

Advancing issues outnumbered decliners by nearly 2 to 1 on the New York Stock Exchange.

Big Board volume came to 310.7 million shares, down from 311.2 million in the previous session.

Stocks traded in a narrow range most of the day, cooling down after a volatile session Thursday in which the Dow swung by 80 points before closing down 10.

On Friday, heavy buying in the last few minutes pushed the Dow decisively higher. The buying was related to a monthly expiration of options and futures contracts, which often makes for volatile action.

The market spent most of the day recovering from a roller-coaster week that was tied to the announcement of President Clinton’s economic plan. Many stock investors fear that the program’s tax increases would arrest the nation’s fragile recovery and hamper corporate earnings. But some contended that the plan, because it pushed interest rates lower, would make it easier for companies to borrow money and thus help them expand.

Among the trading highlights:

* Health care stocks fell sharply in response to Clinton’s attack on rising drug and medical costs. Pfizer slumped 4 5/8 to 54 1/2, Eli Lilly fell 3 1/8 to 48 3/4, Merck dropped 1 to 36 7/8, and Baxter Laboratories closed down 1 5/8 to 28.

* Financial company stocks gained, as analysts decided that lower interest rates would boost the lending returns of these companies. The Federal National Mortgage Assn. rose 2 3/8 to 77 7/8; BankAmerica advanced 2 1/8 to 52 1/8, and PaineWebber rose 1 to 23 1/2.

* Oil stocks rose in enthusiasm about a new OPEC agreement to cut production. Oil prices were also moderately higher. Pennzoil was up 2 1/4 to 57 5/8, Exxon rose 2 3/8 to 64 1/4, Chevron rose 2 1/2 to 77 3/4, and Amoco finished up 2 at 55 3/4.

* Citicorp rose 1 1/2 to 26 1/4. The banking corporation benefited not only from the general rise in financial stocks but from a report that a Saudi prince will keep a nearly 10% stake in the bank and sell only enough stock to meet federal guidelines on foreign bank ownership.

* Circus Circus fell 3 7/8 to 44 3/4 after the sudden resignation of the casino’s chairman and chief executive.

Short interest in stocks traded on the New York Stock Exchange rose 3% in the period ended Feb. 12 to 959.8 million shares from 931.8 million. The American Stock Exchange said short interest increased 7.8% to 71.9 million shares, from 66.7 million.

In short sales, people borrow stock from a broker and sell it, betting the price will decline so they can buy the stock back at lower levels and return them to the lender, pocketing the difference. A large short position typically means people expect the stock to decline, but some consider an increase in short interest bullish because the borrowed shares must be bought back eventually.

In overseas trading, London’s Financial Times index of 100 leading shares finished at 2,840.0, up 2.3 points. In Frankfurt, Germany’s 30-share DAX index ended 5.13 points higher at 1,677.39. Tokyo’s 225-share Nikkei average was up 27.89 points to 17,010.03.

Credit

The price of the Treasury’s bellwether 30-year bond rose 7/32 point, or $2.19 per $1,000 in face amount. Bond prices rise when yields fall.

As the long bond yield dropped to 7%, bank and other financial stocks posted strong gains. Analysts said the prospects for lower interest rates would boost the banking companies’ revenues.

The bond fell in European and early domestic trading Friday, then rebounded when Greenspan praised President Clinton’s economic plan in Senate testimony.

Without making specific promises, Greenspan said the central bank would lower interest rates if necessary to offset any negative effects of the plan’s $325 million in deficit reductions over four years.

The federal funds rate, the interest on overnight loans between banks, was 2.00%, down from 2.88% late Thursday.

Commodities

Fears of an economic slowdown drove silver futures prices to a two-year low on New York’s Commodity Exchange.

Silver for March delivery dropped 6.8 cents to $3.565 an ounce. The contract traded as low as $3.56 an ounce, the lowest price for a near-term futures contract since Feb. 26, 1991.

February gold fell 40 cents to $330.30 an ounce on the Commodity Exchange.

Market Roundup, D6