Bond yields soared to their highest levels in more than a year and a half Friday and stock prices closed broadly lower as a strong April employment report reignited inflation fears and investors anticipated another Federal Reserve Board hike in short-term interest rates.
The yield on the benchmark 30-year Treasury bond surged to 7.55% from 7.33% on Thursday. Friday's yield was the highest since December, 1992.
Yields on short-term securities also soared, with the return on three-month Treasury bills jumping to 4.29% from 4.13% on Thursday--its highest level in more than two years.
In the stock market, the Dow Jones industrial average, off more than 50 points at midday, closed down 26.47 points at 3,669.50 as losing issues outnumbered winners 3 to 1 on the New York Stock Exchange.
While stocks and bonds were falling, gold, oil and some other major commodities posted big gains.
Financial markets headed downward shortly after the Labor Department reported that non-farm payrolls added 267,000 jobs in April, far more than the 170,000 to 200,000 analysts expected. The report rattled Wall Street traders, who have been fearful that the accelerating recovery and its robust job growth will revive inflation, which erodes the value of stocks and bonds.
Their uncertainty was intensified when the Fed failed to raise its key short-term interest rate Friday--the federal funds rate--despite the strong employment report.
"The whole market is expecting a rate increase, and the Fed seems to be resisting it," said Kevin McClean, an analyst with Cavelti Capital Management in Toronto.
The Fed has already raised short-term rates three times in the past 100 days, and many analysts expect a fourth increase to be announced as early as next week.
But some bond traders had hoped that the Fed would act Friday in an effort to show its resolve against inflation and perhaps calm nervous owners of long-term bonds. When the Fed didn't move, many traders dumped bonds Friday, producing yet another selloff in that beleaguered market.
"We're getting crushed in here," said Dudley Eppel, head trader at Donaldson, Lufkin & Jenrette Securities in New York. "There just aren't any buyers around."
In the stock market, the Dow had lost more than 50 points by midafternoon, prompting the NYSE to impose restrictions on some computerized program trading. The move put a floor under prices, and bargain hunters moved in to cut the Dow's losses in half.
Overall, some traders said the stock market's losses were relatively mild. NYSE volume was moderate at 292 million shares, suggesting there was no panic rush for the exits. In commodity markets, gold and silver benefited from the renewed inflation jitters.
Near-term gold futures rocketed $9.80 to $383.40 an ounce on the New York Comex, while silver futures soared 32.8 cents to $5.44 an ounce. In oil markets, crude futures surged to a six-month high as production was squeezed by mechanical problems in the North Sea and civil unrest in Yemen. June crude oil rose 41 cents to $17.70 a barrel on the New York Mercantile Exchange.
In currency markets, the dollar eased slightly despite the strong economic news. It slipped to 1.660 German marks in New York from 1.666 on Thursday and edged down to 102.40 Japanese yen from 102.85.
Among the market highlights:
* Industrial stocks were hit hard on fears that higher interest rates will eventually slow the economy's pace. Losers included GE, off 1 1/8 to 96 5/8; Bethlehem Steel, off 5/8 to 18 1/2; International Paper, down 1 3/4 to 62 7/8; Caterpillar, down 4 3/8 to 108 1/8, and Ford, off 1 to 58.
* Electric utility stocks, which are sensitive to rising bond yields, also plunged. The Dow utility index sank 3.96 points to 188.83, its lowest level since August, 1990.
Pacific Gas & Electric slumped 7/8 to 23 7/8, Commonwealth Edison fell 1 to 24 1/4 and SCEcorp lost 1/4 to 15 3/8.
* Oil stocks were big winners. Arco gained 4 5/8 to 104, Chevron leaped 2 1/8 to 89 1/8 and Texaco surged 1 5/8 to 65 3/8.
In foreign stock markets, Mexico City's Bolsa index fell 58.48 points, or 2.61%, to 2,176.70.
Stocks ended firmer in Tokyo amid an absence of serious sellers due to the "Golden Week" holidays. The Nikkei index gained 292.26 points to 19,862.47.
London's FTSE-100 index was unchanged at 3,106.0. Frankfurt's DAX index added 1.18 points to 2,237.02.
Market Roundup, D4
Higher and Higher
Interest rates leaped again Friday after the federal government reported surprising strength in April job growth. How yields have risen on three-month Treasury bills and since Dec. 31 (weekly closes):
30-year Treasury bond, Friday close: 7.55%
Three-month Treasury bill, Friday close: 4.29%
Source: Bloomberg Business News
Selected Interest Rates
Averages of daily rates ended Thrusday, in percent
Corporate AAA bonds: 7.94%
90-day CDs: 4.27%
3-month Treasury bills: 4.00%
Bank prime rate: 6.75%
Municipal bonds: 6.16%
Federal funds rate: 3.76%
Discount rate: 3.00%
Source: Federal Reserve Board
* UNEMPLOYMENT FIGURES: U.S. jobless rate dips to 6.4%, but California's rate rises to 9.6% in sign that state's economy still lags. A1