Inflationary Fears Again Whack Bonds
Market Overview
* Treasury bond yields opened lower but quickly turned higher Monday after a fresh hint of inflation reawakened market fears.
* The stock market held its ground despite the rise in interest rates. Most indexes closed marginally higher, and smaller stocks led the market. But in Mexico City, stocks plunged more than 3.2% on political worries.
Credit
The beleaguered bond market started the day with a rally, but quickly fell apart after the Federal Reserve Bank of Atlanta released a February survey showing increased manufacturing activity and upward pressure on prices.
By day’s end, the 30-year Treasury bond yield was at 6.95%, up from 6.90% on Friday. Yields on short-term securities also surged. The six-month T-bill yield hit 3.96%, up from 3.91% on Friday.
Traders said big investors remain unwilling to step up and buy fixed-income securities because they fear that too many of their peers are still looking to bail out, as the growing economy threatens to push up the inflation rate.
The Atlanta Fed survey of regional manufacturers said activity had reached its highest level in two years, and more respondents reported paying and asking higher prices for goods than in January.
While the Atlanta report merely confirmed the trend described in a nationwide survey of corporate purchasing managers nearly two weeks ago, bond traders were in no mood to hear it again--especially with two key inflation figures due for release this week: Today, the government will report on wholesale inflation in February; on Wednesday, the February consumer inflation report is due.
Other Markets
The market turned in a good account of itself, given the jump in interest rates, analysts said.
The Dow industrials traded in a narrow range and closed up 0.28 point at 3,862.98.
Though trading was slow, winners topped losers by 6 to 5 on the New York Stock Exchange, and another rally in technology issues pushed the Nasdaq composite index of mostly smaller stocks up 3.60 points to 792.80.
Many analysts say the stock market is in the process of breaking away from the bond market’s woes, as investors focus more on the promise of higher corporate profits than on rising interest rates.
Among Monday’s highlights:
* Tech stocks continued to lead the market, illustrating investors’ hunt for companies benefiting from the expanding economy.
Apple Computer rose 7/8 to 38 1/8 after it unveiled its new Power Macintosh line of personal computers. IBM jumped 1 5/8 to 57 1/2, Digital Equipment soared 1 3/8 to 32 3/8, Lotus gained 1 5/8 to 79 1/8 and Intel leaped 1 3/8 to 70.
* Motorola added 1 3/8 to 107 in the wake of Japan’s agreement Saturday to allow the company to complete its cellular phone installation in that country.
Other telecom stocks gaining included DSC Communications, up 1 5/8 to 56 1/2; Broadband Technology, up 2 1/4 to 26 1/4, and Qualcomm jumped 1 1/4 to 26 3/4.
* A sharply higher quarterly earnings report from Federal Express drove its stock up 3 to 70 5/8.
* Among the day’s losers, NYSE-listed shares of Telmex tumbled 3 1/4 to 62 1/4. In Mexico City, the Bolsa stock index plunged 81.05 points to 2,429.88, as investors again dumped Mexican shares on worries about the country’s political future.
In other foreign markets, Tokyo’s Nikkei index rallied 410.84 points to 20,526.15, and European markets also rebounded sharply. London’s FTSE-100 index surged 41.5 points to 3,233.4, while Frankfurt’s DAX index gained 41.68 points to 2,145.70.
Meanwhile, the dollar rallied against other major currencies, reaching its highest closing level in a month against the Japanese yen.
On the New York Comex, gold continued to advance, rising $1.10 to $386.40 an ounce. Silver rose 7 cents to $5.45.
