30-Year Bond’s Yield Falls Below 7.0% for First Time : Market Overview
Long-term interest rates dipped below 7% for the first time ever in late trading, sending prices sharply higher in a ringing market endorsement of President Clinton’s plan to get the economy back on track.
* Blue chip stocks ended higher, but the NASDAQ market was hit by a sharp selloff in biotechnology stocks.
* The dollar declined broadly in hectic trading on world currency markets, hitting a postwar low against the Japanese yen on fevered speculation that the Group of Seven major industrialized nations may call for a stronger yen at a meeting later this month.
Credit
The yield on the Treasury’s key 30-year bond fell to 6.93% from Friday’s 7.00%, sending its price up 7/8 point, or $8.75 per $1,000 in face amount. Its yield moves in the opposite direction from price.
The bond yield is now at the lowest level since the Treasury began selling the 30-year paper on a regular basis in 1977, and it may be poised to go lower still.
The bond market’s enthusiasm for Clinton’s deficit-cutting plan, presented in his economic package last week to Congress, has been at the root of the bond rally.
“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, chief economist at Kidder, Peabody & Co.
Vignola said the economic plan, with a combination of tax increases and spending cuts, could slow the economy in the near term and cause some initial pain.
During light trading earlier in the day, bond prices actually fell. But by late afternoon, prices were moving higher.
“There was widespread expectation this morning there would be some kind of correction today,” said Carol A. Stone, senior economist with Nomura Securities International Inc.
“When that didn’t happen, people decided they couldn’t fight it anymore, and they jumped into it.”
In the secondary market for Treasury securities, short-term maturities rose 1/32 point to 1/16 point and intermediate maturities rose 1/4 point to 5/8 point, the Telerate Inc. financial information service reported.
The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.
The federal funds rate, the interest on overnight loans between banks, was 2.94%, up from 2.00% late Friday.
Stocks
Market analysts said investors were worried by President Clinton’s proposals for the economy and by his recent comments on containing the cost of health care.
The Dow Jones industrial average rose 20.81 points to 3,342.99 on Big Board volume of 329.57 million shares, down from Friday’s 310.70 million. Advancing issues outnumbered declines by about 10 to 9 on the New York Stock Exchange.
The NASDAQ index, however, was sharply lower, falling 11.19 points to 652.42, led by shares of biotechnology developer Synergen Inc.
The selloff in biotechnology shares was triggered by Synergen, which released disappointing test results for its flagship drug Antril.
Synergen crumbled 28 5/8 to 13 1/2 on volume of more than 20 million shares, and shares in other biotech companies fell in Synergen’s wake.
Among blue chips, banking and retailing stocks were among the stronger performers. Lower interest rates benefit banking companies and the retailing group garnered positive comments from Merrill Lynch & Bear Stearns.
Investors are keeping a close watch as details of the Clinton economic package are disclosed, analysts said.
Pointing to sharp losses in Philip Morris Cos. amid concerns about possible excise taxes, Robert Caputo, director of research at Swiss Bank Corp. Investment Banking Inc., said: “It’s a market that’s getting a lot of overreaction.
“You have just injected a tremendous amount of uncertainty,” he added.
Steve Poling of Fortis Advisers said stocks were perhaps being influenced by the bond market.
“The stock market is looking at the bond market for guidance. At these valuation levels, any increases in interest rates would be very detrimental to stock prices,” he said.
Among the market highlights:
* In the biotech group, Amgen lost 3 1/2 to 41 1/2, Chiron fell 5 1/8 to 45 5/8, Biogen lost 1 3/8 to 26 7/8, Centocor sank 1/2 to 6 1/2, Immunomedics slumped 1 5/8 to 7 1/8, and Genentech was off 2 3/8 to 32 3/8.
* Philip Morris lost 3 3/8 to 64 5/8, UST Inc. fell 2 3/4 to 26 1/4, and RJR Nabisco slipped 1/4 to 8 on fears that the Clinton Administration’s health reform proposals might include a steep excise tax on cigarettes.
* A selloff among drug stocks continued, also amid government reform concerns. Mylan Labs plummeted 4 7/8 to 25 1/2, Johnson & Johnson lost 1 3/4 to 38 7/8, and Bristol-Myers eased 3/4 to 53 7/8. In a related development, Democratic lawmakers in Congress accused drug companies of overcharging consumers, calling for tighter government regulation to rein in prices.
* J.P. Morgan rose 2 3/4 to 65 after Merrill Lynch upgraded the firm’s rating.
* Merrill also upgraded some retailers. May Department rose 2 3/4 to 65, J.C. Penney was up 1 3/4 to 74 7/8, Nordstrom added 1 7/8 to 38 3/4, and Dayton Hudson rose 3/4 to 79 3/4.
Stocks closed mixed in overseas trading. Share prices ended lower in London with the Financial Times 100-share average closing down 1.7 points down at 2838.3. Frankfurt’s 30-share DAX average gained 3.35 points to close at 1,680.74. In Tokyo, the 225-share Nikkei average dropped 189.42 points to 16,820.61.
Currency
The dollar began its descent late Friday after Treasury Secretary Lloyd Bentsen told reporters that he would like to see a stronger yen.
The dollar closed at 116.36 yen in New York, down from 118.23 yen on Friday.
“There was follow-through selling, it was just pushing right along,” said Randolph Donney, research director at Pegasus Econometric Group in Hoboken N.J.
In theory, a higher yen would help address Japan’s burgeoning trade surplus with the U.S. by making Japanese goods more expensive for foreigners. In turn, U.S. goods would be comparatively cheaper for Japanese buyers.
In New York, the dollar fell to 1.623 German marks, down from Friday’s 1.638 marks. The British pound rose to $1.458 from $1.454 late Friday.
Commodities
Oil prices finished above $20 per barrel for the first time since disagreements within the Organization of Petroleum Exporting Countries 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.
Meanwhile, on New York’s Commodity Exchange, gold fell $2.10 to $328.20 an ounce, and March silver dropped 3.9 cents to $3.523 an ounce, a new two-year low.
Market Roundup, D8
