Bad News on Jobless Front Sends 30-Year Yield to Near-Record Low
Interest rates on long-term Treasury securities plunged to near-record lows Friday in a rally spurred by unexpected weakness in the monthly employment report.
The yield on the Treasury’s main 30-year bond sunk to 5.92%, down from 6.01% on Thursday, as traders viewed the September jobless report as further evidence of a weak economy.
It was the 30-year bond’s lowest yield in nearly a month and just above the record low of 5.86% set Sept. 8.
Meanwhile, U.S. stocks ended with modest gains after a day of major swings between positive and negative ground in a confused reaction to the jobs report. The Dow Jones industrial average ended up 1.11 at 3,584.74, ending the week up 3.63 points. European stocks rallied to record highs.
On the surface, the Labor Department report seemed to indicate moderate job strength. The nation’s unemployment rate held steady at 6.7% in September, helped by a big increase in jobs in the service sector.
But Treasury market economists viewed a gain of 71,000 government jobs as a statistical fluke attributed to the summer jobs program. In addition, overall gains of 156,000 jobs in September, while within expectations, were concentrated in low-paying, part-time positions.
In addition, analysts interpreted a decline in the average workweek as a sign of weak demand for overtime, indicating that employers are under little pressure to hire more workers.
“It’s considered a fairly weak recovery when all is said and done,” said Jim Kenney, head government securities trader at Prudential Securities Inc.
Investors reasoned that the news of economic weakness reduced the likelihood that the Federal Reserve Board will raise interest rates, a move that could further stifle economic growth.
Bond investors will be looking for more direction in two inflation reports due out next week, including wholesale prices on Thursday and consumer prices on Friday.
Meanwhile, the Labor Department and the Chicago Board of Trade are looking into the possibility that September employment statistics may have leaked out early.
Questions were raised because prices of Treasury bonds spurted just prior to the official 8:30 a.m. release of the eagerly awaited data, which many investors consider the month’s most important economic report.
It is illegal for investors to trade on such information before it has been released to the public.
Stocks
Stocks were boosted by the bond rally in morning trading but then sold off about midday in activity blamed partly on computer-generated sell programs.
“Maybe they got a little too excited about (the jobs data) to start with, until they actually started to take the numbers apart,” said Kenneth Ducey, head of trading at BT brokerage.
Analysts said the market was also showing the same indecision ahead of third-quarter earnings reports that marked trading throughout the week.
The Nasdaq composite index closed up 1.78 to 764 after dropping to a low of 759 earlier in the session.
Among the market highlights:
* Liberty Media fell 3 1/4 to 25 1/4 and Tele-Communications gained 1 5/8 to 27 1/2 after the two companies said they agreed to merge.
* Western Waste Industries shed 6 3/4 to 11 on disappointment that a proposed merger with Browning-Ferris Industries fell through. Browning-Ferris closed ahead 5/8 at 24.
* C.R. Bard lost 1 3/4 to 23 as the company said a possible agreement with the government stemming from a Justice Department probe of its angioplasty products could result in a substantial fine or penalty.
* Sears, Roebuck dropped 1 1/2 to 56 5/8 as investors sold the stock to collect profits a day after the company posted strong September sales. Two other retailing stocks were among the Big Board’s active issues: Federated Department Stores rose 1/2 to 18 5/8 and Wal-Mart Stores fell 1/8 to 26 5/8.
* The initial public offering of Detroit Diesel, a maker of heavy-duty diesel engines and parts, rose to 25 7/8 from its pricing at 20 in heavy trading.
* Wellfleet Communications gained 3 1/2 to 46 1/2. Goldman, Sachs and First Boston upgraded their ratings on the stock.
* Amdahl lost 7/8 to 5 as the company estimated that its third-quarter operating loss will be wider than its second-quarter loss, reflecting a depressed market for mainframe computer systems and competitive price pressures.
Overseas, London stocks closed at a new high after a late rally shook the market out of its directionless drifting for much of the day. The Financial Times-100 index closed up 16.2 at 3,108.6 to show a gain of 69.3 points since last Friday.
In Frankfurt, the 30-share DAX index ended floor trading up 7.97 at a record 2,005.01. That was 92.92 above last Friday’s close.
Tokyo’s 225-share Nikkei average was up 113.01 points to 20,378.64, showing a net increase of 95.51 in the week.
Other Markets
The dollar fell to 1.6035 German marks in late New York trading from 1.6228 on Thursday. But it rose to 106.00 yen in late New York trading from 104.92.
Highlights of other markets:
* Gold bullion rallied $3.00 to $361.50 an ounce for the most-active December contract on New York’s Commodity Exchange.
* Oil futures prices moved slightly higher during a largely uneventful session. Light, sweet crude oil for delivery in November settled at $18.55 a barrel, up 6 cents, at the New York Mercantile Exchange.
Market Roundup, D4
* JOBLESS RATE CLIMBS: California lost 18,200 jobs in September and saw its unemployment rate climb to 9.4%. A1.
