Bond Yields Retreat on Rosy Inflation Report

Market Overview

* Another good inflation report sent yields for long-term Treasury bonds tumbling for a second straight day Wednesday.

* Although profit taking carried the blue chip Dow average slightly lower in late trading, the broader market ended mostly higher.

Credit

Before this week’s reports on wholesale and consumer inflation, released Tuesday and Wednesday, respectively, many bond market participants fretted that inflation was headed higher in 1994 after low levels the past two years.

However, the government reports this week allayed those concerns, pushing the 30-year bond yield down to 6.79% from 6.87% at Tuesday’s close. Its price, which moves in the opposite direction, jumped 15/16 point, or $9.38 per $1,000 in face value.

On Wednesday, the Labor Department reported that consumer prices rose 0.3% in the so-called core rate after having reported Tuesday that inflation at the wholesale level rose only 0.1% last month, excluding volatile energy and food prices. The combination of figures allayed concerns about inflation that had been aroused by the Federal Reserve Board on Feb. 4, when it raised short-term interest rates with the stated purpose of checking inflation pressures.Other Markets

The Dow industrials were in positive territory for most of the afternoon in sympathy with bonds, but gave up a substantial lead in the last few minutes of trading and closed marginally lower. The blue chip average closed at 3,848.15, down 1.44 points, after gaining more than 16 points earlier in the session. Volume was a hefty 306.82 million shares.

Traders attributed the Dow’s volatility to Friday’s scheduled triple expiration of options and contracts, and noted that the broader market performed much better.

In the broader market, advancing issues outnumbered decliners by about 5 to 3 on the New York Stock Exchange.

Broad-market indexes also finished higher, boosted by merger activity in technology companies. The NYSE’s composite index rose 1.35 to 260.34. The Nasdaq index, heavy with smaller technology issues, rose 5.41 to 798.93.

Despite the robustness in some smaller stocks, the market remains nervous about inflation. “There’s still considerable anxiety in the background,” said Oppenheimer & Co. Strategist Michael Metz.

Among the market highlights:

* U.S. Surgical rose 2 1/4 to 18 3/8 after it reported an improved earnings outlook.

* Citicorp rose 1 1/8 to 41 1/8 at interest rates fell in the bond market.

* Kemper Corp. fell 2 at 59 3/4 as investors took profits in this brokerage stock after it soared more than 20 points following a takeover offer from GE Capital Corp.

* Nike Inc. Class B shares jumped 4 1/2 to 57 1/2. The company reported lower fiscal third quarter earnings late Tuesday but said its profit growth would likely resume in fiscal 1995.

* Software companies Adobe Systems and Aldus Corp. said late Tuesday that they would merge through an exchange of stock valued at $525 million. The announcement pushed Adobe stock down 3 Wednesday to close at 29 1/2. Aldus surged 6 to 32 1/4.

* Telefonos de Mexico’s American depositary shares led the NYSE activity and rose 7/8 to 61 3/4. The stock recovered from sharp losses along with Mexico’s Bolsa, index which rose 20.20 points to 2,382.23 following an easing of political tensions in that country.

* Top Source Technologies was up 3/8 at 7 3/4 in heavy trading after forecasting a profitable second quarter.

* California Micro Devices soared 7 1/4 to 21 1/4. The company said Hitachi Metals will purchase 880,000 of its shares, or about 10%, for $24 per share, and to license its thin-film technology to Hitachi Metals in return for future royalties.

Stocks were mixed in overseas trading. Tokyo’s 225-share Nikkei average closed up 168.92 points at 20,677.77. In Frankfurt, the DAX 30-share average ended at 2,172.73, up 7.14 points, while London’s Financial Times 100-share average fell 24.5 points to 3,242.9.

Elsewhere:

* Gold prices declined $2 to $384.90 on the New York Comex. Silver also fell, losing 8.5 cents to close at $5.377 an ounce.

* The dollar closed lower in light trading.