FINANCIAL MARKETS : Bond Rally Continues; Stocks Are Mixed
Market Overview
* A powerful rally continued in the bond market, sending the 30-year Treasury bond’s yield to a new low after a gloomy report on consumer confidence.
* The stock market ended narrowly mixed as investors tried to sort out the implications of President Clinton’s economic plan and of the research report showing consumer confidence in decline.
* The dollar firmed against the Japanese yen in a mild reversal after recent sharp losses, but it fell against the German mark on the consumer confidence report.
Credit
The 30-year bond yield began to fall after the Conference Board released a survey that showed a sharp decline in consumer confidence in February. The business research group’s widely watched index fell 8.2 points to 68.5 for the month, down from 76.7 in January.
The price of the key bond finished at 6.82%, the lowest ever since the government began selling 30-year bonds in 1977. On Monday, the yield of the 30-year issue closed at 6.93%. The bond’s price, which moves in the opposite direction from the yield, soared 1 13/32 points, or $14.06 for every $1,000 in face value.
The rally is based on the view that Clinton’s budget proposals will trim the government’s $319-billion deficit, John Hickey, senior vice president at Kansallis Banking Group in New York.
Others see the package as slowing economic growth to the point where inflation won’t resume as a threat.
Low inflation and a reduced federal deficit boost the value of bonds.
Hickey said the unexpected fall forced many traders to buy bonds quickly to cover technical trading positions. Many traders had expected the index to remain steady or show a slight decline.
The federal funds rate, the interest on overnight loans between banks, was 2.875%, down from 2.938% late Monday.
Stocks
Health care and biotechnology stocks, which have plunged in recent sessions, recovered slightly.
The Dow Jones industrial average closed down 19.72 points to 3,323.27. However, advancing issues outnumbered declines by about 8 to 7 on the New York Stock Exchange.
Big Board volume rose to 329.06 million shares, up from 329.57 million the day before.
Trading was erratic, with factors pulling the market both up and down, analysts said.
The worse than expected consumer confidence report did little to help the market Tuesday. Among the market highlights:
* Chrysler fell 2 1/8 to 35 7/8, Ford Motor fell 1 7/8 to 44 7/8, and General Motors fell 1 3/4 to 36 7/8.
But health care stocks, which have taken a sound beating in recent days, were largely higher as bargain hunters moved into the market. Merck rose 1 to 37 5/8, Glaxo rose 1/4 to 19, and Bristol-Myers Squibb rose 2 3/4 to 56 5/8.
Investors have been frightened out of health care issues by Clinton’s attacks on drug companies and his threats of price controls.
* Royal Appliance, the Cleveland-based maker of vacuum cleaners, plunged 4 1/8 to 7 after the company released a weak quarterly earnings report.
* Among actively traded NASDAQ issues, Synergen, which lost 68% of its value Monday after reporting disappointing data on drug research, rose 1 1/4 to 14 3/4. Nordstrom fell 5 3/4 to 32 7/8 after a negative comment from an analyst.
* On the Amex, Angeles Mortgage fell 9 1/2 to 6 1/2 after announcing Friday that it had suspended its monthly dividend. The company did not trade Monday.
Overseas, the Frankfurt market closed near the day’s lows after investors took their profits from recent rallies, with the 30-share DAX average closing down 19.16 points at 1,661.58. Tokyo’s 225-share Nikkei average rose 42.54 points to close 16,863.15, and London’s Financial Times 100-share average fell 20.3 points to 2,818.0.
Other Markets
The dollar managed to rally off its lows but was restrained from posting further gains as bond yields fell.
“That report (consumer confidence) helped bring the dollar a bit lower,” said John McCarthy, foreign exchange manager at ABN AMRO Bank. Lower yields make fixed-income securities less valuable for investors, thereby decreasing their need for dollars.
In New York, the dollar recovered a bit from Monday’s slide, closing at 117.05 Japanese yen, down from Monday’s close of 116.36, which was the lowest closing there since modern exchange rates were established after World War II.
The dollar was not so lucky against the German mark. The greenback finished at 1.623 marks, down from 1.623 the day before. The British pound fell to $1.453 from 1.458.
Meanwhile, precious metal futures rallied on New York’s Commodity Exchange. Gold rose $2.90 to $331.10 an ounce, and silver surged 5.7 cents to $3.582 an ounce.
In energy trading on the New York Mercantile Exchange, April light, sweet crude oil rose 24 cents to $20.48 a barrel
Market Roundup, D6
