Bond, Stock Prices Fall; Silver Soars
Market Overview * Treasury market participants rang in the new year on a sour note Monday, pushing long-term bond yields to nearly five-month highs and pushing down prices more than a point.
* Stocks ended mostly lower in quiet trading, although blue-chip issues managed a late advance.
* Silver futures prices soared to a five-month high, reflecting growing optimism about the economy and future industrial demand for the metal. Gold also rose.
Credit
Spurred by fresh signs of economic growth, the powerful rise in long-term yields suggested the market was more worried than many had expected about the continued improvement in the economy.
Bond prices fall in good times because of the likelihood of higher interest rates and inflation, both of which depress the value of fixed-income investments.
The yields on the Treasury’s main 30-year bond shot up to 6.42% from 6.34% on Friday. The last time the bond’s yield was this high was Aug. 12, when it closed at 6.44%. Its price, which moves in the opposite direction, plunged 1 1/16 points, or $10.63 per $1,000 in face value.
It was the fifth bond price decline in six sessions. Sellers who had sat out last week’s thinly traded holiday market joined the fray Monday, pushing prices sharply lower from the outset of trading.
The price tumble accelerated with the midmorning release of two economic reports that support the view of a growing economy.
The National Assn. of Purchasing Management said its monthly survey shows continued expansion in the manufacturing sector in December. The group’s monthly index of manufacturing activity registered a steeper than expected 57.9% in December, up from 55.7% the previous month and the third consecutive month of growth.
The government also reported that construction spending rose 1.8% in November for the seventh consecutive monthly advance. The increase was a bit stronger than what many analysts had expected.
The reports added to concern among fixed-income investors that the Federal Reserve Board will nudge short-term interest rates higher in the first half of the year as a way to control nascent inflation pressures.
That sentiment has depressed bond prices in recent months, because higher rates on new securities would depress the value of bonds already sold.
The outlook for the rest of this week was seen as holding little room for improvement in bond prices.
On Friday, the Labor Department is scheduled to release its employment report for December. Economists expect that the economy gained about 220,000 non-farm payroll jobs last month, another signal that the recovery accelerated last quarter.
“If you’re looking for something positive for the bond market, it is tough to find,” said Jim Kenney, head government securities trader at Prudential Securities Inc.
Short-term Treasury securities fell 1/8 point to 7/32 point and intermediate maturities were off 13/32 point to 13/16 point, the Telerate Inc. financial information service reported.
Stocks
Stocks spent much of the session firmly lower, but they recovered slightly late in the day when the Dow skipped to its narrow advance.
Oil shares helped buoy blue-chip stocks.
Smaller company stocks, which last week ran up in value, were among those hit hardest.
The Dow Jones industrial average rose 2.51 points to 3,756.60 on Big Board volume totaling 279.25 million shares, up from Friday’s 171.39 million.
In the broader market, declining issues outnumbered advances about 3 to 2 on the New York Stock Exchange.
Rising long-term bond yields hurt the stock market, said Don Hays, an investment strategist at Wheat First-Butcher & Singer. Stocks and bonds have often moved in tandem recently because low interest rates make shares more appealing and cut the cost of money to companies.
Mostly, however, investors were waiting to see which way the market would move, said James Melcher, founder and president of Balestra Capital.
“There’s always a lot of uncertainty at the beginning of the year,” Melcher said.
Among the market highlights:
* Concern about inflation pushed gold stocks higher. Gold is often considered a hedge against inflation. Sunshine Mining led the NYSE most-active list, rising 1/2 to 3 1/8.
* Oil stocks moved higher after news that the Organization of Petroleum Exporting Countries is considering bringing forward its scheduled March 25 meeting. Chevron rose 7/8 to 88.
* Among other actively traded NYSE issues, Federated Department Stores rose 2 to 22 3/4 after the company bought a stake in R.H. Macy & Co. for $449 million.
* Telefonos de Mexico lost 2 to 65 1/2 amid reports that 57 people had been killed in an Indian uprising in southern Mexico.
* Among technology stocks on the Nasdaq market, Intel fell 3/4 to 61 1/4, Microsoft dropped 1/2 to 80 1/8, Lotus Development shed 1 1/2 to 53 1/2, Cisco Systems lost 3/8 to 64 1/4 and Oracle Systems lost 1/4 to 28 1/2.
* Toys R Us fell 7/8 to 40 after the company said Michael Goldstein, the toy retailer’s vice chairman, was named chief executive, succeeding Charles Lazarus.
Shares ended higher abroad, although markets were closed in Tokyo and London. In Frankfurt, the DAX-30 share average closed up 1.3 points at 2,267.98. On the Paris bourse, the CAC-40 index closed nearly 1% higher after a lackluster start.
Other Markets
Analysts could cite no single dominant reason for silver’s mighty move but agreed that the strengthening economy and accompanying fears of inflation contributed to it.
On the New York Comex, silver for current delivery closed at $5.220 an ounce, up 13.3 cents from Thursday. The British metals market was closed.
Gold for current delivery closed at $393.70 an ounce, up $2.90 from Thursday.
Stronger crude oil prices also fueled inflation fears and buying of precious metals, said Bernard Savaiko, senior metals analyst with Paine Webber Inc.
Crude futures climbed on the New York Merc on talk that OPEC might move up its scheduled March meeting to late January or early February.
February light, sweet crude oil rose 39 cents to $14.56 a barrel.
Elsewhere, the dollar rose against most currencies.
Market Roundup, D10
