Yields Plunge; Dow at 3rd Straight Record
Market Overview * News of unexpectedly weak employment growth in December sent 30-year Treasury bond yields tumbling, pushing prices sharply higher.
* Stocks rallied to a third straight record close, energized by a booming bond market.
Credit
The long-term bond’s yield plunged to 6.22% from 6.34% on Thursday. It’s price, which moves in the opposite direction, staged its biggest one-day rally in nearly three years, leaping 1 5/8 points, or $16.25 per $1,000 in face value.
Bond market strategists said the phenomenal one-day surge could signal an important shift in credit market sentiment. Enthusiasm for buying bonds has wilted in recent months on perceptions that the economy grew briskly last quarter, paving the way for an inflationary climate that could hurt the value of fixed-income investments.
But Friday’s report from the Labor Department apparently convinced many Treasury market participants that bonds once again are a good investment.
The last time the long-term bond’s yield fell that much was Feb. 19, 1991.
The Labor Department reported that non-farm payrolls increased by a seasonally adjusted 183,000 in December. That was substantially lower than the 225,000 to 250,000 gain many economists had expected. Indeed, some bond traders expected up to 300,000 more jobs.
Nickolas Kinas, a government bond trader at Bank Leumi Trust Co. of New York, said the market’s powerful surge Friday demonstrated a pent-up demand for bonds after months of bearishness.
Higher rates on newly sold securities can hurt the value of already-sold bonds, which pay a fixed rate of return.
The federal funds rate, the interest on overnight loans between banks, was quoted at 2.875%, down from 3.125% on Thursday.
Stocks
Computer-guided program buying late in the session augmented the advance on Wall Street that carried the Dow Jones average up 16.89 to 3,820.77, its third closing high in a row.
The Dow finished 66.68 points ahead for the week.
Smaller stocks also moved ahead, and the Nasdaq composite added 2.53, rising to 782.94 and ending the week up 6.14 points.
Trading was heavy and remained above 300 million shares on the New York Stock Exchange for a fourth straight session. NYSE volume came to 324.92 million shares.
The Big Board had its second-busiest week ever as more than 1.696 billion shares changed hands. That ranks behind the 2.3 billion shares traded in the 1987 week that contained the Oct. 19 crash.
“We’re really following the bonds and the belief the economy is in good shape,” said Gregory Nie, analyst at Kemper Securities.
Cyclical and interest-sensitive stocks, such as auto makers and financial service companies, benefited most.
Among the market highlights:
* Citicorp gained 1 to 37 7/8, JP Morgan rose 1 1/2 to 69 1/8 and Braintree Savings added 1 3/8 to end at 13 3/8.
At the market’s close, Viacom Inc. said it and Blockbuster Entertainment Corp. were merging and that Viacom increased to $105 a share the amount it would pay in cash to Paramount Communications Inc. shareholders for 50.1% of Paramount.
* Before trading in their shares was halted ahead of the announcement, Viacom was off 7/8 to 46 1/8, Paramount was up 7/8 to 79 1/4 and Blockbuster fell 1 5/8 to 28 1/4. Rival bidder QVC Network was also halted and was up 1 1/8 to 40 5/8.
* Among auto makers, Ford gained 7/8 to 64 1/2 and GM rose 3/4 to 57 7/8.
* Advanced Micro Devices gained 1/8 to 18 3/8 after the company reported unexpectedly low fourth-quarter earnings.
* Rite Aid rose 1 1/2 to 18 5/8. The drug retailer announced a restructuring that involves focusing on its core business and closing money-losing stores.
* Merck gained 1/2 to 37 1/8 after the stock’s investment rating was raised to “buy” from “hold” by the brokerage Nomura Research Institute.
* Golden West Financial has reportedly been exploring the possibility of acquiring California Federal Bank. Its stock ended up 4 1/2 at 43 3/4.
In overseas trading, Mexico City’s Bolsa index plummeted 59.14 points, or 2.2%, to close at 2,625.03 on nervousness that the guerrilla activity in the southern state of Chiapas could spread to other parts of the country.
In London, the Financial Times 100-share average closed up 43 points at 3,446.0. Tokyo’s Nikkei-225 average finished up 242.02 at 18,124.01, and on the Paris bourse the CAC-40 index was up 32.49 at 2,307.55. Frankfurt’s 30-share average fell 8.58 points to end at 2,211.64
In other markets:
* The dollar fell against most major currencies after release of the jobless report. The dollar declined after the jobs number, then rose, but fell again. Many traders who had bought dollars heavily in recent weeks sold to lock in profits or close out their positions, dealers said.
* Gold for current delivery fell on the New York Comex to $386.40 an ounce, down $2.80 from Thursday, while silver closed at $4.998 an ounce, off 11.1 cents.
* Natural gas futures prices rushed to a six-week high on the New York Mercantile Exchange amid forecasts of frigid weather in the Northeast and Midwest.
Market Roundup, D4
