FINANCIAL MARKETS : Disappointing Auction Pushes Bond Yield Up : Market Overview
Weaker than expected demand for new 30-year Treasury bonds sparked a wave of selling in bonds that erased an early rally.
* The dollar continued its nose-dive against the Japanese yen and by early today in Tokyo was trading at 101.85 yen, a new low.
* Stocks pulled back as bonds weakened, although the market recovered late in the day. Meanwhile, gold and other commodity prices plunged.
Credit
The bond market had a roller-coaster day.
Early on, yields plunged after the government reported an unexpected 0.2% drop in July wholesale inflation and as commodity prices tumbled.
But after the government’s auction of $11 billion in new 30-year bonds got under way, sellers suddenly materialized. Although the new bond sold at an average yield of 6.33%--a historic low--traders had expected an even lower figure.
That caused some investors to take profits from the bond market’s stunning recent rally. The existing 30-year T-bond yield finished the day at 6.43%, up from Wednesday’s 6.42% and well up from the morning low of 6.39%.
The 30-year bond auction concluded the Treasury’s quarterly refunding, which began Tuesday with a sale of three-year notes.
The sudden turn in the market’s fortunes Thursday accompanied gloomy rumblings among some traders, who believe bonds could be ripe for heavier profit taking by investors who have made huge money on the recent plunge in yields--which has boosted the underlying prices of bonds.
Currency
The dollar tumbled to a new postwar low of 102.91 Japanese yen in New York on Thursday, from 103.64 on Wednesday.
As the Tokyo market opened today, the dollar quickly plunged below 102 yen, to 101.85--despite repeated intervention by the Bank of Japan.
Dealers said the dollar continues to tumble as players focus on Japan’s huge trade surplus. Japan’s trade partners have argued for a stronger yen to help cut their deficits by making Japanese goods more expensive abroad.
“There is absolutely nothing that can stop the yen’s surge now,” said Tamaji Ikehata, a dealer with Tokai Bank.
Meanwhile, the dollar eased to 1.716 German marks in New York, from 1.723 on Wednesday.
Other Markets
Commodity prices plummeted, led by gold, as the wholesale inflation report underscored widespread price weakness.
In the stock market, the Dow industrials lost 14.26 points to 3,569.09, but the market fought back from a midday loss of nearly 30 points.
In commodity markets, losses in metals, cotton, soybeans and grains drove the Commodity Research Bureau index to a six-week low, off 2.20 points to 212.53.
Gold futures for current delivery sank $7.90 to $367.40 an ounce, and silver slid 12 cents to $4.55.
“I don’t think the gold market will recover from this. It won’t be going back above $400 an ounce anytime soon,” said Jim Steel, an analyst at Refco Inc. in New York.
On Wall Street, stocks were hurt by program selling and by the turnaround in bonds. Losers topped winners by about 11 to 8 on the Big Board, on strong volume of 278.53 million shares.
“It was a profit-taking opportunity. We’ve had about all the good news we’ll have for a long time,” said Michael Metz, an investment strategist at Oppenheimer & Co. “If you don’t sell now, when can you?”
Among the market highlights:
* Gold stocks that followed the metal lower included Newmont Mining, off 3 to 47 3/8; Homestake Mining, down 7/8 to 18 3/8, and American Barrick, down 3/4 to 24 3/8.
* Profit taking in the Dow centered on Coca-Cola, off 1 1/4 to 42 1/2; Kodak, off 1 1/4 to 60, and Caterpillar, down 1 to 81 3/8.
* T2 Medical skidded 4 3/4 to 8 7/8 after the home-infusion company said it found irregularities and errors in its accounting, resulting in lower quarterly earnings. Its chief executive quit.
* On the upside, HMO stocks recovered somewhat after tumbling Wednesday on concern about federal health care reform plans. United HealthCare rose 4 to 56 3/4, HMO America shot up 2 3/4 to 35 7/8 and Wellpoint Health gained 1 5/8 to 26 1/4.
Overseas, markets fared better. Frankfurt share prices gained more than 2% on high volume of mostly foreign buying. The DAX index closed up 39.15 points at a three-year high of 1,904.95.
In London, the Financial Times 100-share average added 3 points to 3,009.1, beating Wednesday’s previous record.
In Tokyo, the Nikkei average gained 32.71 points to end at 20,765.28.
Market Roundup, D8
