Dow Gains 17.04 in Wake of Surprisingly Strong Demand at Treasury Bond Auction
Market Overview
* Surprisingly robust demand at the Treasury’s latest note auction sent bond yields plunging, pushing prices sharply higher in late trading Wednesday.
* An afternoon rally in the bond market juiced up what had been a lackluster day in stocks, sending share prices higher.
* The dollar ended sharply lower across the board in thin, pre-holiday U.S. trading, pressured by the bond market and comments from Treasury Secretary Lloyd Bentsen.
Bonds
Analysts said investor demand for the new five-year notes was the strongest in nearly two years, stunning many market participants who had bet on weaker results.
“We were all really surprised,” said Bob Bannon, senior bond strategist at the IDEA market advisory firm. “There was a real belief that there was no interest in the five-year.”
In secondary trading, the yield on the Treasury’s main 30-year bond tumbled to 6.21% from 6.31% on Tuesday. Its price, which moves in the opposite direction, jumped 1 7/32 point, or $12.19 per $1,000 in face value.
The strong auction results were all the more surprising in the face of weak market participation this time of year, with many customers absent in advance of the Christmas holiday.
The Treasury sold $11 billion in notes at a yield of 5.19%. Most market participants had expected the government to award the issue at a yield of 5.22% or 5.23%, indicating that strong demand allowed the Treasury to offer lower returns.
Also demonstrating the brisk demand, the bid-to-cover ratio--a measure that compares the number of bids offered to those accepted--was 3.22-to-1, much higher than the 2.60-to-1 average over the last 14 auctions. It was the strongest demand since February, 1992.
Stocks
Analysts said stock investors’ fears of higher interest rates seem subdued for the moment and some began traditional year-end buying.
The Dow Jones industrial average gained 17.04 points to close at 3,762.19 on Big Board volume of 272.44 million shares. In the broader market, advancing issues outnumbered decliners by about 9 to 8 on the New York Stock Exchange.
The market opened mixed with blue chips higher and small stock indexes pulled down by bad news involving several technology firms.
Among them was Oracle Systems, which lost 4 3/8 to 31 1/4 on the Nasdaq. While the software maker reported an 86% rise in quarterly profits, it was downgraded by two securities firms--Cowen & Co. and UBS Securities--over concern that its revenues were below expectations.
Declining bond yields prompted buying in the stock market, where investors like low interest rates because they help corporate profits and make stocks more desirable than other investments like money market funds.
Among the market highlights:
* Still reeling from its loss of the TV rights for the National Football Conference, CBS Inc. fell 5 3/4 to 286.
* SciMed Life Systems lost 3 1/8 to 34 after posting lower third-quarter earnings.
* Snapple gained 1 3/4 to 25. Morgan Stanley started a buy rating on the stock, which is expected to rise to 31.
* Intel rose 2 to 61 1/2. Prudential upgraded the stock to buy from hold after the chip maker announced a price cut plan earlier this week.
* Dell Computer Corp. gained 1 1/4 to 24 1/8. The computer maker is negotiating with Sony Corp. to have it manufacture notebook-size personal computers bearing the Dell name. Sony lost 1/4 to 49 1/8.
* Borden dropped 2 to 17 1/8 after the dairy, food and consumer products company said it was close to completing a restructuring and is not involved in negotiations for a sale or merger, as had been widely rumored.
Oil stocks were mostly higher after some bullish news from the Middle East. The Iranian oil minister was quoted as saying the Organization of Petroleum Exporting Countries should take action to bolster prices.
* Mobil gained 1 3/4 to 77 5/8 while Chevron was up 1 3/8 to 87 1/2.
* Retail stocks varied widely as investors placed bets on Christmas sales. May Department Stores was up 1 3/4 to 40 5/8; J.C. Penney was up 1 1/8 to 52 5/8 while Sears lost 1 1/8 to 52 1/2.
Stocks closed higher in overseas trading.
Frankfurt’s 30-share DAX average reached a record high, closing up 14.58 at a record 2,197.51. In London, the Financial Times 100-share average finished at 3,355.7, up 13.3 points, while Tokyo’s 225-share Nikkei average ended up 130.31 at 17,445,74.
Other Markets
After the dollar climbed to a seven-month high against the Japanese yen in overnight trading, Bentsen released a statement expressing concern that Japan had not met its commitment in reducing its trade surplus and stimulating its economy.
That sent the dollar plummeting on the notion that the Federal Reserve might indeed be willing to buy yen to support the Japanese currency.
In New York, the dollar closed at 110.35 Japanese yen, up from Tuesday’s 111.18 yen. The greenback closed at 1.703 German marks, down from 1.710 marks.
Elsewhere, crude oil futures prices rallied strongly Wednesday on the New York Merc on news that six Persian Gulf states were willing to cut production if non-OPEC producers would do the same. Light sweet crude oil for February delivery rose 41 cents to $14.77 a barrel.
Meanwhile, gold for current delivery settled at $386.00 an ounce, off $1.90 on New York’s Comex. Silver settled at $5.038 an ounce, down from $5.063 on Tuesday.
Market Roundup, D4
