Stocks Drift as Bond Yield Rises; Dow Slips to 3,851.72
Market Overview
* Long-term bond yields rocketed to eight-month highs Tuesday, as the bears regained control of the bond market.
* Investors seized on the rise in interest rates as an excuse to sell stocks, pushing share prices lower.
Credit
The yield on the Treasury’s key 30-year bond soared to 6.87%, its highest closing level since June. The bond closed Monday at 6.79%. Its price, which moves in the opposite direction, plummeted down 29/32 point, or $9.06 per $1,000 in face value.
There was little fresh news to influence trading. Instead, analysts cited the recent bearishness that has gripped the market since the Federal Reserve decided to push up a key, short-term interest rate early last month.
“Investors simply are not doing anything--not necessarily selling or buying,” said Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis.
Prices actually opened higher after jumping in overseas trading, in a follow-through to U.S. dealings Monday, when the 30-year bond rose 7/16 point.
The market was buoyed by news of Federal Reserve Board Gov. Lawrence Lindsey remarks Monday. He reportedly said that he expected short-term interest rates to remain around “three something” this year.
That led to speculation that the Fed might not be as aggressive in raising interest rates as previously expected.
A Lindsey aide later said that the official’s remark was not meant to be taken literally.
“That disappointed the market,” Sohn said. “It was the main news of the day.”
Other Markets
Stocks followed bond prices lower at mid-morning, as investors refocused on interest rates after the long bond’s yield turned sharply higher. Investors have been nervous since the Fed early last month raised interest rates for the first time in five years, sparking volatility in stocks.
Stock investors don’t like to see rates rise because that raises the cost of money to companies and makes share prices less appealing.
The Dow Jones average fell 4.50 to 3,851.72 and declining issues outnumbered advancing ones about 11 to 9 on the New York Stock Exchange.
Big Board volume came to 298.12 million shares, up from 285.59 million Monday.
Still, many analysts said stocks were looking more to the economy’s improving strength than to interest rates for direction now, and the selloff in bonds was little more than an excuse to shed stocks after advances on Friday and Monday.
Stocks ended mixed abroad. In Tokyo, the 225-share Nikkei average rose 86.51 points to 19,898.39, while Frankfurt’s DAX 30-share average ended at 2,124.04, up 15.13. Stocks closed lower in London, with the key Financial Times 100-share average losing 41.5 points, to close at 3,290.8. Mexican City’s Bolsa index slid 30.48 points to 2,571.41.
Among the market highlights:
The blue-chip losers included Allied Signal, which dropped 1 3/8 to 77 1/8 after rising 1 1/8 on Monday. Boeing slipped 3/4 to 47.
Their weakness was offset by solid gains in other blue chips. IBM rose 2 1/2 to close at 54 3/4; General Motors gained 1/2 to close at 62.
* Ford Motor Co. slipped 5/8 to 63 3/4 and Chrysler Corp. gained 3/8 to 59 7/8.
* International Paper jumped 1 7/8 to 74 1/4; Goodrich rose 1 to 42 3/4.
* Varity rose 4 3/8 to 48 7/8. The machinery maker released fiscal fourth-quarter earnings of 59 cents a share, vs 1 cent in the ’93 period.
* U.S. Robotics fell 2 1/4 to 43 after it cut list prices up to 40% on its high-speed modems used for portable computers.
* Sphinx Pharmaceuticals rose 2 9/16 to 5 7/16; Eli Lilly jumped 3/4 to 53 1/4. The companies signed a letter of intent for Lilly to acquire Sphinx at $6 a share.
Meanwhile, in other markets:
* The dollar was narrowly mixed against other currencies in subdued trading, with U.S. Secretary of State Warren Christopher due to arrive in Tokyo today to discuss trade issues.
* The gold price rose on the New York Comex to $376.70 an ounce, up 80 cents from Monday. Silver rose 3 cents to $5.206 an ounce.
* Crude oil futures prices were unchanged on the New York Merc.
