Bond Yields, Commodities Decline
Long-term bond yields fell as plunging commodity prices and a rising dollar helped lessen concern that inflation might accelerate. Stocks, encouraged by the bond market, closed higher.
The benchmark 30-year bond yield fell sharply at the opening but rose a bit, partly in reaction to weaker-than-expected demand for $17 billion in two-year notes auctioned Tuesday afternoon by the Treasury.
The long bond’s yield closed at 7.39%, down from Monday’s 7.43%. Its price, which moves in the opposite direction, closed up 13/32 point, or $4.06 per $1,000 in face value.
The high yield for the two-year notes at the auction was 5.94%, the highest since two-year notes sold for 6.01% on Oct. 23, 1991. In addition, some market participants took profits on the morning’s increases, which were tied to commodity prices and the performance of the dollar.
Rain in the Midwest drove soybean futures prices down sharply Tuesday, triggering steep declines in many commodity prices one day after a broad advance.
The CRB index of 21 agricultural and industrial commodities, is viewed as a gauge of inflation and is commonly watched in the bond market because inflation erodes the value of fixed-term investments. The index fell 3.67 points to 234.69. The index had vaulted 4.67 points Monday to its highest level in 3 1/2 years.
In addition to soybeans, grain, cocoa, coffee, precious metals, hog and crude oil prices also fell.
Meantime, news that the United States and Japan will resume formal trade talks sent the dollar sharply higher against most major currencies Tuesday.
In late New York trading, the dollar climbed to 104.65 Japanese yen from 104.36 yen Monday. Against the German mark, the dollar was quoted at 1.655 marks, up from 1.645 marks.
On Wall Street, stocks moved ahead, tracking the bond market’s rebound. Also helping sentiment was the dollars sharp rise.
Selling to collect profits in the stocks of several big name companies restrained the Dow Jones industrial average, which settled for a slim gain. The popular gauge of blue-chip stock performance edged up 2.76 to 3,745.17.
Broader-market measures fared better. The New York Stock Exchange composite index rose 0.62 to 251.40 and Standard & Poor’s 500 stock index increased 1.61 to 454.81. The Nasdaq index of mostly smaller companies gained 6.52 points at 731.47.
On the Big Board, advancing issues beat declines by about 1,245 to 915. Volume on the NYSE floor totaled 280.02 million shares, up from 249.42 million Monday.
Among the market highlights:
* CBS lost 18 to 270 after falling 15 1/2 on Monday on news it is losing eight television affiliates to rival Fox Network. Goldman Sachs removed CBS from its recommended list, citing the loss of the affiliates.
* New World Communications, the owner of the defecting stations, gained 2 1/8 to 12 3/4.
* Medical Care America jumped 3 7/8 to 27 1/4 on its plan to merge with Columbia/HCA Healthcare, which fell 5/8 to 39 1/8.
* Merck ended up 5/8 to 30 7/8, off a high of 32 1/4, in heavy trading after the resignation of the head of its Medco unit fueled speculation about who will be named Merck’s new CEO.
* Philip Morris fell 1 3/8 to 53 7/8 in active trading ahead of its board meeting today. The stock has rallied recently on speculation that the company may separate its food and tobacco businesses.
* Dell Computer rose 3 to 29 after posting solid first-quarter results.
Foreign markets were mixed. Frankfurt’s 30-share DAX average ended the session 2.26% lower, with share prices under pressure from weak debt markets and DAX futures prices, dealers said. The DAX average ended at 2,198.72, down 50.93 points on the day.
In London, the Financial Times 100-share average fell 19.3 points to 3,089.1, while Tokyo’s 225-share Nikkei average finished up 53.41 points at 20,622.12, while
Mexico City’s Bolsa index gained 37.09 points, to end at 2,468.52, the session high.
