FINANCIAL MARKETS : Bond Selloff Continues; Gold Rebounds : Market Overview
The bond market’s selloff stretched into a third session Thursday, pushing the yield on the 30-year Treasury bond above 6% for the first time in two weeks.
* Stocks climbed above their lowest levels of the day, but still finished with modest losses.
* Gold jumped more than $5 an ounce as signs of rising Chinese demand convinced some traders that the metal’s slide is over.
Credit
Interest rates overall were mixed and mostly flat, but the bellwether 30-year Treasury bond--which has spearheaded the bond market’s summer rally--suffered another severe bout of profit taking late in the day.
The bond’s yield rose to 6.03% by the close, up sharply from 5.97% on Wednesday. The yield had not been above 6% since Sept. 2.
Traders in London began selling bonds overnight after the New York Times reported Thursday that two Federal Reserve Board governors believe that any further reduction in interest rates would encourage dangerous speculation in financial markets.
Some bond investors had been counting on the idea of another Fed cut of short-term rates to also drive long-term rates lower.
The selling picked up late in the session after the Fed released the weekly money supply figures, which showed more growth than had been expected, said Carol Stone, senior economist at Nomura Securities International Inc.
An unexpected rise in the money supply can be a sign of inflation, which erodes the value of bonds.
Stone said there is a great deal of uncertainty in the bond market now, as traders wonder how much further the profit taking will go. The 30-year bond hit a historic low yield of 5.86% on Sept. 8.
“There is a lot of sentiment that bond prices ran up very quickly and there needed to be some consolidation,” Stone said.
Other Markets
The jump in long-term interest rates capped the stock market’s attempt to mount a rally.
The Dow industrials drifted most of the day and closed off 2.80 points to 3,630.85. Other indexes were mixed.
Activity was slowed by the Rosh Hashana holiday. Big Board volume was 229.7 million shares, down from 298.2 million on Wednesday.
Traders said there was no clear trend in the market, which could bode ill for prices in the short term: Sellers may quickly get the upper hand over buyers if the latter fear the market’s rise is temporarily stalled.
Among the market highlights:
* Gold stocks followed the metal higher. Placer Dome rose 1 3/4 to 19 1/8, ASA jumped 1 5/8 to 41 5/8 and Newmont Mining added 1 3/8 to 46 5/8.
* Oil stocks were generally weak. Arco fell 2 1/4 to 113 1/8, Mobil lost 1 1/4 to 77 1/8, Halliburton slumped 1 to 36 3/4 and Unocal eased 5/8 to 27 1/4.
* Among growth stocks, Home Depot, which had tumbled earlier in the week, rose 1 7/8 to 37 3/8 after brokerage J. C. Bradford raised its near-term rating on the stock to “buy” from “neutral.” But Nike fell 1 1/2 to 47 1/4, a 1993 low.
* Whirlpool slumped 3 1/2 to 57 1/4 on concern that its second-half growth won’t match that of the first half.
Overseas, Tokyo’s Nikkei average fell 445.64 points, or 2.1%, to 20,502.15 on fresh worries about the Japanese economy.
In Frankfurt, the DAX index eased 4.72 points to 1,855.67. In London, the FTSE-100 added 14.5 points to 3,003.9.
In other markets:
* Gold for current delivery jumped $5.10 an ounce to $352.60 an ounce on New York’s Commodity Exchange. Silver soared 9.1 cents to $4.07.
One factor behind gold’s recent skid, slack demand from mainland China, may be changing, analysts said. The price premium for gold in Hong Kong over the prevailing world price has widened, indicating increased Chinese buying, said George Milling-Stanley, analyst for Lehman Bros.
* In energy trading on the New York Merc, light, sweet crude oil for October slipped 3 cents to $16.83 a barrel.
* The dollar slid in New York to 104.15 Japanese yen from 105.98 on Wednesday. It rose to 1.603 German marks from 1.595.
Market Roundup, D8
