FINANCIAL MARKETS : Bond Yields Hit Another Low; Stocks Lose Ground
Market Overview
* Long-term bond yields fell to historic lows for a second day, but shorter-term yields inched up as the Treasury sold $16.67 billion in new three-year notes.
Stocks succumbed to mild profit taking after reaching new highs Monday. Gold prices also edged lower.
Credit
The yield on the 30-year Treasury bond continued to fall, to the amazement of many traders.
The bond’s yield closed at 6.44%, down from 6.46% on Monday. The new yield is the lowest since the Treasury began selling 30-year bonds in 1977.
Analysts say the 30-year bond has entered a new orbit all its own and that demand is being fueled by rumors, buying by investors eager to lock in long-term yields and heavy speculation by traders who are simply riding the bond for short-term gain.
The catalyst for the latest bond rally was passage of President Clinton’s budget plan late last week, which promises to reduce the federal deficit significantly but which also may slow the economy in the short run via higher taxes.
But if demand for 30-year bonds is robust, traders are less impressed with investors’ interest in shorter-term securities.
In the first leg of its quarterly refunding Tuesday, the Treasury sold $16.67 billion of three-year notes at an average yield of 4.49%--well above the 4.27% yield at the last three-year note sale in May.
The new notes’ bid-to-cover ratio (bids offered versus those accepted by the Treasury) was 2.73 to 1, down from 2.87 to 1 in May.
In general Tuesday, shorter-term yields were slightly higher.
Today, the Treasury will sell new 10-year notes; the refunding concludes Thursday with the sale of new 30-year bonds.
Stocks
The market took a breather after Monday’s run to record levels.
The Dow Jones industrials eased 3.35 points to 3,572.73, although advancing issues narrowly edged decliners on the New York Stock Exchange.
The NASDAQ market of mostly smaller stocks also slipped.
Alfred Goldman, analyst at brokerage A.G. Edwards in St. Louis, said he was encouraged that profit takers failed to get control of the market Tuesday, after Monday’s record close.
Getting the Clinton budget package passed was a major hurdle for the market and may prove more bullish than some analysts are willing to admit, Goldman said.
Among the market highlights:
Industrial stocks regained their market leadership position, suggesting optimism about the economy. Caterpillar rose 1 3/8 to 80 3/4, ITT jumped 2 1/8 to 92 7/8, Inland Steel rose 7/8 to 27 1/8, Nucor gained 3/4 to 85 1/2 and Dover was up 1 1/4 to 50 3/8.
Insurance stocks were also strong, helped by falling long-term interest rates. Aetna rose 3/4 to 59 1/4, Geico jumped 2 1/4 to 56 and AIG zoomed 1 3/4 to 96 1/2.
On the downside, retail stocks were mostly lower following mixed or disappointing quarterly earnings reports. Dillard Department Stores sank 2 3/8 to 35, Wal-Mart lost 1/2 to 25 and May Department Stores gave up 1 5/8 to 41 5/8.
Following the retailers, some brand-name stocks continued to weaken on worries about eroding pricing power as consumers look for the best values.
Procter & Gamble, for example, slid 1 1/8 to 46 1/4. It reported a large quarterly loss as it attempts to cut costs to compete better.
Other consumer losers included Nike, off 2 to 53 1/8; Reebok, down 1 1/8 to 24 1/2; General Mills, down 3/4 to 58 3/4, and American Home Products, off 1 1/8 to 59 3/4.
Technology stocks were weak. Microsoft lost 2 to 71, a new 1993 low. Chartists who follow the stock’s pattern say the shares have made a significant downside break by falling below 72.
Overseas, London’s FTSE-100 index fell 14.8 points to 2,971.6, while Frankfurt’s DAX index lost 7.14 points to 1,865.16.
In Tokyo, the Nikkei average closed up 0.70 point at 20,493.75.
Other Markets
The dollar climbed against most major currencies in light but volatile trading.
The dollar closed in New York at 1.717 German marks, up from Monday’s 1.697. Against the yen, the dollar fell to 104.70 from 104.91.
Elsewhere, oil futures retreated on the New York Merc. Light, sweet crude oil for September fell 3 cents to $17.52 a barrel.
On New York’s Comex, gold for current delivery closed at $380.90 an ounce, off $2.40. But silver added 3.6 cents to $4.75.
Market Roundup, D8
