30-Year T-Bond Yield Hits Record Low; Dow Adds 20 : Market Overview
The yield on 30-year Treasury bonds sank below 7.0% for the first time, closing at 6.93%, as investors continued to rush into bonds on the belief that interest rates overall are headed lower. Traders cited the move as a ringing endorsement of President Clinton’s plan to cut federal spending while rejuvenating the economy.
* Blue chip stocks ended higher, but the NASDAQ market was hit hard again after biotech firm Synergen released disappointing test data for its key new drug. Synergen stock plunged 28 5/8 to 13 1/2.
* The dollar hit a postwar low against the Japanese yen on fevered speculation that Japan will be pressured by its allies to boost the yen’s value, to raise the price of Japanese exports.
Credit
The bond rally occurred late in the day, taking many traders by surprise. At 6.93%, the 30-year Treasury bond yield was down sharply from 7.0% on Friday, and was the lowest yield since the government began issuing the bonds on a regular basis in 1977.
The 7.0% mark had been considered a key psychological barrier, and many analysts figured that the market would have trouble breaking sharply below that level.
But the desire to own bonds has mushroomed recently, as more investors have come over to the view that inflation should stay benign even as the economy grows.
Last week, with President Clinton’s plan to cut the federal deficit while stimulating certain sectors of the economy, the bond rally accelerated. Many investors appear to be betting on one of two things: Either the plan will succeed, and federal borrowing will be curbed; or the plan will push the economy into a new recession, taking further pressure off interest rates.
“Long bond yields are going lower . . . so long as the public is enchanted with the possibility that the President’s package will be passed,” said Anthony Vignola, economist at Kidder Peabody.
Rates fell across the board on longer-term securities Monday, though they actually moved up a bit on securities maturing in less than one year.
Some experts cautioned that the bond market has reached the euphoria stage, and that it is vulnerable to a severe correction if investors begin to fear that the economy will grow too quickly or that inflation will revive.
The 30-year bond in particular is a tool of short-term traders, analysts note. Those traders could be just as quick to exit as they were to enter the market.
Stocks
The market continued to be buffeted by perceptions of winners and losers under the Clinton Administration’s economic plan: In general, health care stocks were slammed anew on Monday, while industrial issues gained.
The Dow industrial average added 20.81 points to 3,342.99, and broader blue chip indexes also rose. Trading was heavy on the Big Board, at 329.57 million shares.
But the NASDAQ market of smaller stocks was hit by another big selloff, led by biotech stocks. The NASDAQ composite index sank 11.19 points, or 1.7%, to 652.42. With Monday’s loss, the NASDAQ index now is off 8% from its all-time high.
The plunge in biotech was triggered by Synergen, which said test results for its flagship new anti-inflammatory drug, Antril, were disappointing. The Boulder, Colo.-based firm said the latest study showed a higher than expected mortality rate for patients who receive the highest dose of Antril.
The test centered on patients with sepsis, a blood infection that kills 100,000 each year.
Synergen had been considered the best hope to become the next big biotech star. Thus, the Antril news devastated biotech investors, and they dumped biotech shares across the board.
Synergen stock fell nearly 70% for the day, and its trading volume of 21 million shares ranked as the second-highest ever posted by a NASDAQ stock. The highest was 24.6 million shares of MCI Communications on Nov. 16, 1990.
Synergen’s plunge occurred even though the firm said that Antril still demonstrated a “meaningful” reduction in mortality for the most severely ill patients, and that the company still plans to seek federal approval of the drug.
With investors fearful that health care companies in general will be squeezed by President Clinton’s cost-cutting initiatives, the Synergen news accelerated the exodus out of nearly all health care stocks, traders said.
Among the market highlights:
* Other biotech losers included Amgen, down 3 1/2 to 41 1/2; Chiron, off 5 1/8 to 45 5/8; Biogen, down 1 3/8 to 26 7/8, and Genentech, 2 3/8 to 32 3/8.
* Major drug stocks also sank. Mylan Labs fell 4 5/8 to 25 3/4, Warner-Lambert lost 1 1/2 to 61 1/2, and Johnson & Johnson dropped 1 1/2 to 39 1/8.
* Sellers also continued to hit health maintenance organization stocks. U.S. Healthcare slid 4 to 39 1/2, Wellpoint Health lost 2 5/8 to 24 3/8, and PacifiCare Health A dropped 4 1/2 to 26.
* Philip Morris lost 3 1/2 to 64 1/2, and UST Inc. fell 2 3/4 to 26 1/4 on fears that the Clinton Administration’s health reform proposals might include a steep new excise tax on cigarettes.
* On the plus side, many industrial issues moved higher on the expectation that they could benefit from higher spending on capital equipment and infrastructure under Clinton’s plan. USX-U.S. Steel jumped 1 7/8 to 37 1/2, Tenneco gained 2 to 45, and Cummins Engine leaped 1 5/8 to 85 1/2.
Overseas, London’s Financial Times 100-share average fell 1.7 points to 2838.3. Frankfurt’s DAX average gained 3.35 points to 1,680.74.
In Tokyo, the Nikkei average dropped 189.42 points to 16,820.61.
Currency
The dollar plunged anew against the Japanese yen, closing at 116.36 yen in New York, down from 118.23 on Friday.
Monday’s close was a new postwar low against the yen.
The dollar began its descent late Friday after Treasury Secretary Lloyd Bentsen told reporters that he would like to see a stronger yen.
Bentsen’s remarks were the latest in a long line of comments from various U.S., Japanese and European officials suggesting that the G-7 nations may want to use a higher yen to chip away at Japan’s tremendous trade surplus. The group meets Feb. 27.
In New York, the dollar also fell to 1.623 German marks, down from Friday’s 1.638 marks.
Commodities
Oil prices finished above $20 per barrel for the first time since disagreements within OPEC put doubt on the cartel’s ability to deliver a production cut.
Light, sweet crude oil for delivery next month settled at $20.02 per barrel, up 40 cents, at the New York Mercantile Exchange.
OPEC last week reached an agreement to lower its total daily quota by 1 million barrels.
Meanwhile, on New York’s Comex, gold fell $2.10 to $328.20 an ounce. March silver dropped 3.9 cents to $3.52, a new two-year low.
Market Roundup, D8
