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 mixed as investors tried to balance optimism about President Clinton’s economic plan against the surprising consumer confidence report.

- The dollar firmed against the Japanese yen in a mild reversal after recent sharp losses.

Credit

The 30-year T-bond yield began to fall after the Conference Board said its February consumer survey showed a sharp decline in a key confidence index in February, to 68.5 from 76.7 in January.

Investors have been barreling into bonds over the last week on the belief that Clinton’s economic plan will keep interest rates low while restraining federal borrowing.

But the confidence report suggested another reason to expect lower yields ahead: If consumers restrain their spending because of expected tax hikes, the economy could slow substantially.

By the close, the yield on the 30-year bond had plunged to 6.82% from 6.93% on Monday, when it fell below 7.0% for the first time.

John Hickey, analyst at Kansallis Banking in New York, said the 30-year bond’s dramatic rally forced many traders to buy bonds to cover trading positions. That added to the rally.

Yields dropped on bonds of shorter-term maturities as well. In an auction of new two-year notes, the Treasury garnered an average yield of 3.94%, the lowest ever.

Some analysts believe that the 30-year bond yield could drop as low as 6.5% soon. But they caution that yields could rebound again in the spring if the economy shows renewed strength or if Clinton’s deficit-reduction plan falters.

Stocks

Investors dumped stocks of many companies that depend on robust consumer spending, after the Conference Board’s consumer confidence index showed a decline.

The Dow Jones industrial average closed down 19.72 points to 3,323.27. But advancing issues outnumbered declines by about 8 to 7 on the New York Stock Exchange, where volume continued heavy at 329.06 million shares.

Traders noted that the market has been upset by President Clinton’s proposed higher taxes, which could put a damper on consumer spending and thus the economic recovery. The confidence report seemed to exacerbate those fears.

Among the market highlights:

- Auto stocks were hard-hit by the confidence report. Chrysler fell 2 1/8 to 35 7/8, Ford lost 1 7/8 to 44 7/8, and GM dropped 1 7/8 to 36 7/8.

- Retailers also were slammed. Nordstrom led the decline, plunging 5 5/8 to 33 after the firm told analysts that earnings expectations of $1.99 a share for 1993 were too ambitious. The retailer cited cautious consumer spending.

Other retail losers included May Department Stores, down 1 3/8 to 68 5/8; Sears, off 1 7/8 to 52; Ann Taylor, down 1 to 19 7/8, and Federated Department Stores, which lost 3/4 to 17 7/8.

- Gambling stocks were hurt by economic worries and by news that Arizona may ban gambling on Indian lands. Caesars World sank 4 to 40, Argosy Gaming dropped 3 1/4 to 15 3/4, Mirage lost 2 1/8 to 33 3/4, and Jackpot Enterprises fell 1 3/8 to 18 1/4.

- On the plus side, health care issues attempted a rebound after their latest drubbing. Merck rose 1 to 37 5/8, Bristol-Myers jumped 2 3/4 to 56 5/8, Pfizer leaped 3 1/8 to 57 1/8, Amgen added 2 to 43 1/2, and Wellpoint Health gained 2 to 26 3/8.

- Royal Appliance, a maker of vacuum cleaners, plunged 4 1/8 to 7 after the company released a weak quarterly earnings report.

- Among Southland issues, Angeles Corp. fell 1 7/8 to 1 1/8. The real estate firm reported a huge loss.

Overseas, the Frankfurt market closed near the day’s lows after investors took their profits from recent rallies, with the DAX average losing 19.16 points to 1,661.58. London stocks also were weak. The Financial Times 100-share average fell 20.3 points to 2,818.0.

In Tokyo, the Nikkei average inched up 42.54 points to 16,863.15.

In Mexico City, the Bolsa index slumped 30.38 points, or 1.9%, to 1,542.66 on renewed worries about the Clinton Administration’s trade policies.

Other Markets

The dollar managed to rally off its lows but was restrained from posting further gains as U.S. bond yields fell sharply.

Lower interest rates make U.S. bonds less attractive to foreign investors, thereby weakening demand for the dollar.

In New York, the dollar closed at 117.05 Japanese yen, up from Monday’s close of 116.36, which was a postwar low. The dollar had been driven down in recent days by expectations that Western allies will pressure Japan to strengthen the yen to help cut Japan’s large trade surplus. Against the German mark, the dollar finished at 1.623, unchanged from Monday.

Elsewhere, near-term gold rallied $2.90 to $331.10 an ounce on the Comex, and silver surged 5.7 cents to $3.58.

On the New York Merc, April light, sweet crude oil rose 24 cents to $20.48 a barrel.

Market Roundup, D6