Inflation News Clips Yields; Stocks Mixed
Market Overview * News of a small rise in the core rate of wholesale inflation last month was well-received by bond traders, who let yields fall. Another inflation test looms today.
* Wall Street closed mixed, with smaller stocks again in the lead.
Credit
Bond traders breathed a collective sigh of relief after the government reported the wholesale inflation figure for February.
Though the Commerce Department said overall wholesale inflation rose 0.5%, economists said the jump was attributed almost entirely to soaring prices for heating oil.
The core inflation rate, excluding food and energy, rose just 0.1%.
The news sent the yield on the Treasury’s 30-year bond tumbling to 6.87% from 6.95% on Monday, and shorter-term yields also fell.
“I thought the number was terrific,” said John V. Sebastian, analyst at bond firm Clayton Brown & Associates in Chicago.
The market faces another test today, when the government reports consumer price inflation in February.
In theory, subdued inflation should give investors more confidence to lock in current yields on bonds, because long-term market interest rates tend to decline in periods of low inflation.
In recent weeks, bond yields have surged as investors have bet that the strong economy will push inflation up as well. But the wholesale inflation figure suggested those expectations were wrong.
However, analysts say the market also has another fear: that the Federal Reserve Board will continue to push short-term rates up to restrain the economy and that long-term yields will automatically rise with short rates.
The Fed was a help to the bond market Tuesday, buying an estimated $3.5 billion to $4 billion in Treasury securities in its seasonal operation to add to banking system reserves, analysts said.
Other Markets
Blue chips eased Tuesday, but smaller stocks continued to rebound sharply.
The Dow industrials lost 13.39 points to 3,849.59, paying little mind to the bond market rally.
But in the broader market, advancing issues outnumbered decliners by about 9 to 8 on the New York Stock Exchange.
And buyers again showed a preference for smaller stocks, which have led the market’s slow climb back from its recent slide. In fact, the Nasdaq industrial index, heavy with small technology issues, rose 0.68 point to a record high 842.12.
In contrast, the Dow remains 3.2% below its record high.
Despite the market’s improving tone, some analysts say investors are on edge, worrying that the Fed will raise short-term interest rates for a second time when its policy-making committee meets next Tuesday.
Among Tuesday’s highlights:
* Some financial services and mutual fund company shares rose in the wake of GE Capital’s unsolicited takeover offer for Kemper Securities. Kemper shot up 4 3/4 to 61 3/4, SunAmerica gained 2 to 40 1/2, Travelers added 1 1/4 to 37 3/8, Franklin Resources rose 3/4 to 47 3/4 and Dreyfus surged 1 1/2 to 49.
* Technology winners included Intel, up 1 1/4 to 71 1/4; Western Digital, up 1 1/4 to 19 3/4; Filenet, up 3/4 to 27; California Amplifier, up 3/4 to 5 1/4, and 3Com, up 3 5/8 to 60.
* Among Southland issues, Jefferies Group added 1/8 to 30 5/8. After the market closed, the brokerage said it will spin off its Investment Technology Group in a public offering.
* Among the day’s losers, Perrigo, a maker of store-brand-name over-the-counter drugs, sank 5 to 22 3/8 on worries about slower sales. Also falling was Cott, which makes low-priced soft drinks. It lost 1 1/8 to 26 3/4 on news that Pepsico and Coca-Cola are gaining back market share in Canada.
* Mexican and Chilean stocks traded on the NYSE were sharply lower as the home markets tumbled. Telmex plunged 1 3/8 to 60 7/8 as sellers continued to hammer the Mexican market on political concerns and in the wake of the kidnaping of a prominent banker.
Chilean Telefonos, meanwhile, plummeted 15 3/4 to 100 1/2 on the NYSE before trading was halted. The firm was dealt a stunning blow to its rates by Chilean regulators.
Elsewhere overseas, London’s FTSE-100 index rose 34 points to 3,267.4 and Frankfurt’s DAX index added 20.42 points to 2,165.59.
In metals markets, gold inched up 50 cents to $386.90 an ounce on the Comex; silver added 1.5 cents to $5.46.
