Heavy Buying of U.S. Notes Boosts Bonds; Dollar Surges : Markets: Yields fall and stocks break their losing streak. Efforts to support U.S. currency appear to be working.
Bond yields posted their biggest decline since early April on Tuesday, buoyed by heavy demand at a Treasury note sale and a powerful rally in the dollar.
Stocks got a lift as well, and the Dow Jones industrials rose 27.37 points to 3,656.41 in active trading.
Rumors that European central banks had joined forces to buy huge amounts of Treasury securities swept world financial markets and added momentum to bond, stock and dollar gains.
The 30-year Treasury bond yield fell to 7.49% from Monday’s 18-month high of 7.65%. The yield’s decline was the biggest one-day drop since April 5.
In currency markets, the dollar surged to a six-week high against the Japanese yen as traders began to sense that the Clinton Administration’s plan to shore up the dollar, announced last week, might be working. Also, rumors swirled about phone consultations among world central bankers regarding future coordinated interventions to support the dollar.
The dollar jumped to 104.68 yen in New York from 102.68 on Monday. It also soared to 1.675 German marks from 1.653 marks Monday.
Also helping the dollar were small overnight cuts in short-term interest rates by the German Bundesbank and the Bank of Japan. With the Federal Reserve Board expected to raise U.S. short-term interest rates again soon, lower rates overseas may increase foreign investors’ interest in U.S. securities.
“If you’ve got a stable dollar--and it seems like we have--our market is incredibly cheap relative to other markets around the world,” said Peter Hirsch, head government bond trader at Salomon Bros. “I don’t think anybody saw anything but buyers all day.”
The turn in investor sentiment toward bonds, after the surge in rates Friday, was also apparent at the Treasury’s auction Tuesday of $17 billion in three-year notes. The average yield on the notes was 6.54%, slightly below expectations.
The Treasury received bids totaling $48.25 billion for the notes, an indication of healthy demand.
“The three-year went real well,” said Andrew Brenner, trader at Nomura Securities International. “I got lifted out of a lot of (bonds) today” by customers.
And, in a sign of strong demand from small investors, the Treasury said it received $1.45 billion of non-competitive tenders for the notes, up from the $846 million for notes auctioned Feb. 8.
Such offers are usually submitted by small investors who agree to accept the average yield.
In the bond market overall, foreigners were thought to be active buyers, led by central banks using dollars they snapped up last week. Before U.S. markets opened, Middle East investors were said to have jumped into the bond market in London.
“Large buyers from the Middle East who had been out for quite some time” stepped in, said Peter Mayers, assistant vice president at Bank Julius Baer.
In the stock market, shares rallied broadly, snapping a four-session losing streak.
The Dow industrials’ gain of 27.37 points offset some of the 85 points lost in the last four sessions amid interest rate worries.
In the broader market, advancing issues outnumbered declining ones 1,316 to 881 on the New York Stock Exchange.
But the stock market was still uneasy about the prospects for higher short-term interest rates, traders said.
“The major concern is still that we’re faced with a series of short-term rate hikes, beginning with the one that will probably happen next Tuesday,” Jack Shaughnessy, research chief at Advest said, referring to next week’s meeting of the Fed’s policy-setting committee. “The question is: To be followed by how many more?”
Among Tuesday’s market highlights:
* Rebounding blue chip stocks included Caterpillar, up 1 1/8 to 106 3/4; IBM, up 1 to 58; Procter & Gamble, up 1 1/8 to 54 5/8; GM, up 1 5/8 to 55 1/2, and Anheuser-Busch, up 1 7/8 to 53 1/2.
Also, AT&T; rose 1 1/8 to 52 7/8 on news that it has won a $4-billion contract to modernize telecommunications in Saudi Arabia.
* Drug stocks continued their recent rally. Pfizer rose 3/4 to 60 1/4, Warner-Lambert jumped 1 5/8 to 72 1/8, Johnson & Johnson gained 7/8 to 41 5/8 and Merck was up 3/4 to 30 5/8.
* Electric utility stocks, many of which fell to five-year lows Monday, continued to be under pressure.
Florida utility FPL rebounded 1 5/8 to 29 1/8 after diving 4 3/8 on Monday, after it cut its dividend. But American Electric Power plunged 1 3/8 to 28, Houston Industries dropped 7/8 to 31 3/4 and SCEcorp eased 1/8 to 14 5/8.
Many overseas markets were higher. London’s FTSE-100 index gained 38.5 points to 3,136.3 and Frankfurt’s DAX index added 16.27 points to 2,235.15.
In Mexico City, the Bolsa index soared 65.51 points to close at 2,213.09.
In Tokyo, the Nikkei index added 130.82 points to 19,917.78.
In U.S. commodity markets, June crude oil futures eased 12 cents to $17.61 a barrel on the New York Merc, a retreat from the morning high of $17.90, which was a six-month high.
But gold slipped $2.40 to $378.80 an ounce at the Commodity Exchange in New York. Silver lost 12.8 cents to $5.32.
