Bond Yields Fall; Dow Drops 15 : Market Overview
Long-term Treasury bond yields moved downward as fresh reports of slower economic growth soothed inflation fears.
* Blue chip stocks ended lower under pressure from steep losses in transportation shares.
Credit
Credit market activity was thin in the first full trading day after the explosion at the World Trade Center on Friday, which forced the shutdown of the complex’s two main towers. Several banks and brokerages that are tenants there curtailed their bond trading operations as they sought alternative space.
The Treasury’s key 30-year bond yield retreated to 6.84% from 6.89% on Friday. The long bond’s price, which moves in the opposite direction from yield, rose 11/16 point, or $6.88 per $1,000 in face amount.
The long bond’s yield retreated at the opening after the Group of Seven major industrialized nations failed to announce that they would strengthen the Japanese yen during a meeting of the group’s finance officials this weekend.
That led the dollar to rise against the yen, which encouraged traders to buy dollar-denominated investments such as U.S. bonds, said Mike Casey, an economist for Maria Fiorini Ramirez Inc. in New York.
Yields continued to fall after several reports that seemed to signal a continued slow economic recovery.
The most significant came in a survey of the nation’s purchasing managers, which said the manufacturing economy continued to expand in February, but slower than in January.
In addition, a real estate trade group reported that sales of previously owned homes fell 6.4% in January after four straight increases. The Commerce Department reported modest increases in personal income and spending in January, a sign of steady economic growth.
The department said in a separate report that construction spending fell for the first time in five months in January.
Treasury bond prices were also helped by the current rush by homeowners to refinance their mortgages, which has driven down the value of mortgage-backed securities and persuaded many investors to switch to government bonds. Investors don’t like refinancings because it gives them back their money prior to their bonds’ maturities, forcing them to reinvest during a time of historically low interest rates.
The confluence of positive news allowed traders to focus on President Clinton’s plan to reduce the federal deficit, Casey said.
The Clinton economic plan, by lowering the federal deficit, would reduce the amount of Treasury debt in the market, pushing prices higher. Also, many expect the tax hike proposals might slow the economy and lower inflation.
Inflation can wipe out the returns of fixed-income investments such as bonds.
In the secondary market for Treasury securities, short-term maturities rose 3/32 point to 5/16 point and intermediate maturities rose 15/32 point, the Telerate Inc. financial information service reported.
The federal funds rate, the interest on overnight loans between banks, was 3.625%, up from 3.25% late Friday.
Stocks
Trading was subdued after Friday’s powerful bomb explosion in the World Trade Center complex. Salomon Bros., Dean Witter and other investment firms with offices in the center were either closed down or relocated, causing difficulty for clients who wished to reach their brokers.
Analysts said investors found few compelling reasons to be aggressive buyers of stocks.
The Dow Jones industrial average was off 15.40 points to end at 3,355.41. But in the broader market, advancing issues outnumbered declines by about 5 to 4 on the New York Stock Exchange.
Big Board volume totaled 237.02 million shares, down from 242.99 million Friday.
One stock sector that was hit hard was the transports, with the Dow transportation average losing 33.44 points, or 2.20%, to 1,484.66.
The transportation shares would be one of the first to benefit from Clinton’s economic revival program.
Among the market highlights:
* UAL lost 2 1/2 to 117, USAir slipped 1/4 to 15 1/2, and Delta Air Lines lost 1 5/8 to 47 5/8.
* Compaq Computer lost 3 3/8 to 41 7/8. SoundView Financial cut its rating to hold, traders said.
* Some drug stocks that gained included Merck, up 1 to 39 1/2; Glaxo, up 3/8 to 19 1/4; Schering-Plough, up 1 1/2 to 58 1/2, and Pfizer, up 1 to 59 3/8.
* H&R; Block slid 3 to 38 3/8. First Boston cut its rating to hold from buy, traders said.
* Amgen rose 1 3/8 to 37 5/8. Goldman Sachs upgraded its view on the company.
* Concerns about a steep rise in the federal excise tax on cigarettes continued to hurt Philip Morris, which lost 1 7/8 to 65 1/4.
Other Markets
The dollar was mixed against major currencies in light, listless trading that occurred without several major foreign currency trading firms that were knocked out by the World Trade Center bombing.
The dollar settled at 1.655 German marks in New York, up from Friday’s 1.646 marks. Against the Japanese yen, the dollar closed at 118.70 yen, up from 118.25 yen late Friday.
Energy futures prices rallied on news that Iran, Kuwait and Qatar are cutting oil production, thereby tightening supply and possibly forcing cash prices higher. Light, sweet crude oil settled at $20.60 per barrel, 20 cents higher than the last price available in Friday’s trading.
Market Roundup, D8
