30-Year T-Bond Yield Hits a Low : Market Overview
Treasury bond yields plummeted again, as money continued to pour into bonds. The yield on the Treasury’s 30-year bond sank to an all-time low of 6.78%, and shorter-term yields also slid.
* Stocks managed to extend Tuesday’s powerful rally, but the biggest gains were in smaller stocks. The Dow Jones industrials added 3.51 points to 3,404.04.
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The bond market rally has become a source of amazement on Wall Street: Just when traders believe yields have fallen as far as they can, a deluge of fresh cash enters the market, seeking to lock in yields.
At Wednesday’s yield of 6.78% on the 30-year Treasury bond--down from 6.84% on Tuesday--the return on the bonds now is nearly a full percentage point below its level just before the November election. As recently as a month ago the yield was 7.24%.
Traders say investors are chasing bonds largely because they believe that the economy will continue to grow moderately at best, which should leave room for lower interest rates if inflation stays tame.
At the same time, many investors appear sure that President Clinton’s budget deficit-reduction plan will produce real cuts in the deficit in the future, said Carol A. Stone, senior economist at Nomura Securities.
Significant demand for bonds is coming from individual investors. They may be even more eager to buy Treasury bonds this week because the government last Saturday reduced the guaranteed yield on U.S. savings bonds to 4% from 6%.
The savings bond rate had actually become more attractive than yields on Treasury bonds of similar maturity--so would-be savings bond buyers now have to look to Treasury, corporate and municipal bonds for high returns.
Still, experts said trading volume in bonds was relatively moderate, not record-setting. They noted that all trading systems still are not on line after last week’s World Trade Center bombing.
“There is firm demand for these securities but prices are a little more volatile than they would be otherwise if there was a full complement of trading going on,” Stone said.
The bond market faces a key test Friday, when the government reports on February unemployment. Any hint of faster than expected growth in the economy could cause bond buyers to begin worrying about higher interest rates down the road.
Stocks
Stocks tried to build on Tuesday’s gains, when the Dow soared 45.12 points in a late rally.
The bond market provided encouragement for stock buyers. “As yields go down, that makes the value of stocks go up. That’s been the driver,” said A. C. Moore, investment strategist at Argus Investment Management.
But the Dow rally Wednesday never approached Tuesday’s magnitude. And late in the day, a report from industrial giant International Paper helped trim the Dow’s gains.
International Paper said its business remains uninspired so far this quarter. It cited poor prices for white paper and weak demand in European markets.
IP stock, which had been up 1 7/8 at 65 1/2 before the news, fell to 63 1/2 by the close, off 1/8 on the day.
Still, many other industrial issues closed higher, as investors continued to bet that the economy will be strong enough to produce healthier corporate profits in coming months.
The Standard & Poor’s 500 index closed up 1.36 points at 449.26, just under its all-time high of 449.56. Gainers topped losers by 2 to 1 on the Big Board, on moderate volume of 272 million shares.
Smaller stocks rolled up good gains for a second day. The NASDAQ composite index rose 0.9% after jumping 1.2% Tuesday.
Analysts warn, though, that with stock prices near record highs and interest rates near record lows, there is little room for investor error in the market.
“People need to have a very keen sense of valuation here. They need to recognize that the biggest mistake you can make is overpaying for this market,” said Bradley Turner, chairman of McDonald & Co.’s investment policy committee.
Among the market highlights:
* Industrial stocks leading the market higher included Martin Marietta, up 2 to 72 1/4; Nucor, up 1 3/4 to 87 1/4; Cummins Engine, up 1 1/4 to 86 1/2; Eaton, up 1 7/8 to 81 3/4; Cooper Tire, up 1 1/8 to 34 5/8, and Allied-Signal, up 2 1/8 to 67 3/4.
* Computer networking stocks helped power the NASDAQ market higher. Newbridge Networks leaped 3 5/8 to 51 1/8, Cisco Systems gained 1 7/8 to 90 1/2, and Cabletron Systems jumped 4 3/4 to 82.
* Elsewhere in the tech sector, San Diego-based Qualcomm surged 3 1/4 to 35 3/4 after Bell Atlantic said its cellular phone unit will use a digital technology promoted by Qualcomm.
On the downside, Irvine-based AST Research tumbled 1 7/8 to 15 1/8 after saying that it will cut prices on its personal computers and that the move is expected to reduce its near-term earnings.
* Downtrodden biotech issues attempted to rally. Genzyme jumped 1 5/8 to 35 1/8, Biogen rose 1/2 to 31 1/2, and Gensia gained 1/2 to 22 3/4. But Amgen lost 3/4 to 36 3/4.
* Some food stocks were hot. Kellogg jumped 1 7/8 to 66 1/4, General Mills rose 2 3/8 to 73, and Ralston Purina added 1 3/4 to 51 7/8.
* Telecommunications issues also saw heavy buying. AT&T; surged 1 3/8 to 57 3/8, MCI gained 3/4 to 41 7/8, and Pacific Telesis rose 3/4 to 47 3/8.
* Among the day’s big losers were oil stocks, which had rallied earlier in the week. Merrill Lynch downgraded Chevron stock to neutral from above average , citing the stock’s advance. Chevron fell 1 3/4 to 78. Others losers included Mobil, off 1 1/4 to 67 5/8; Arco, down 3 3/8 to 118 5/8, and Texaco, down 2 to 62 1/4.
* Tobacco stocks eased after three members of Congress said they will introduce a bill to raise the 24-cent federal tax on cigarettes to $1 a pack and use the money for health care. RJR Nabisco, the most-active issue on the NYSE, was off 1/4 to 8 5/8. Philip Morris slid 7/8 to 66 5/8.
Overseas, the London stock exchange spent most of the day in record high territory, boosted by the strong showing on Wall Street, brighter economic prospects in Britain and good company results. The Financial Times 100-share average ended up 36.3 points at a record high of 2,918.6.
But in Frankfurt, the DAX index slid 3.01 points to 1,693.70.
In Tokyo, the Nikkei average lost 10.33 points to 16,853.92 in uninspired trading.
In Mexico City, shares rose for the fourth session in a row, boosted by signs that interest rates are stabilizing and investment money is returning to the stock market. The Bolsa index jumped 22.56 points to 1,612.99 in brisk trading of 108.49 million shares.
Currency
The dollar moved mostly higher--except against the yen--in skittish dealings ahead of a German central bank meeting today that could lead to lower interest rates and a weaker mark.
Dealers said the market was anticipating possible official German rate cuts even though the central bank signaled otherwise Tuesday in money market operations. But the central bank delivered surprise rate cuts last month and traders said another one could not be totally ruled out.
“The market’s mood swings have been pretty dramatic lately,” said John Lyman, dealer at Bank of Tokyo. “You never can rule out a cut of some kind.”
The dollar settled in New York at 1.648 German marks, well above the 1.640 of late Tuesday.
But against the yen, the dollar tumbled in Asia after a Japanese government official was quoted as saying Japan’s monetary officials are prepared to accept the yen’s recent gains against the dollar.
By the close in New York the dollar traded at 116.65 yen, down from 117.73 Tuesday.
Commodities
Grain prices weakened, but only slightly, after U.S. and Russian officials put off a resolution to Russia’s agricultural debt defaults totaling more than $400 million. Russia has been unable to buy U.S. grain since late November after it fell into arrears on its government-guaranteed agricultural loans.
May corn declined a penny to $2.215 a bushel, May wheat also lost 1 cent to $3.39 a bushel, and May soybeans dropped 2.25 cents to $5.83 a bushel.
Petroleum prices were up slightly, helped by weekly supply figures that showed a drop in gasoline inventories when many had been expecting an increase. Light, sweet crude oil for delivery in April settled at $20.48 per barrel, up 1 cent, at the New York Merc.
Near-term gold futures fell 80 cents on New York’s Comex to $329 an ounce. Silver eased 0.7 cent to $3.56.
Market Roundup, D6
