Yields Rise With Commodities Surge
Treasury bond prices ended modestly lower Tuesday, weakened by a selloff in European bond markets and inflation fears renewed by soaring commodity prices. Blue chip stocks closed slightly higher as gains in some key shares held off bearish pressure from the rise in commodities prices.
The Treasury’s bellwether 30-year bond yield rose to 7.43% from Friday’s 7.39%. Its price, which moves in the opposite direction, dropped 11/32 point, or about $3.44 per $1,000 in face value.
The Commodity Research Bureau’s index of 21 commodities’ prices, considered an indicator of future inflation, rose 4.49 points to 235.37, the highest since last Tuesday. The index rose because forecasts for dry weather in the Midwest boosted grain and soybean futures.
Precious metals also gained, with gold rising $2.40 an ounce on the New York Comex, closing at $387.10. Silver fetched $5.530, up from $5.454 on Friday.
Investors in fixed-income securities dislike inflation because it gradually diminishes the value of bonds, which pay set rates of interest.
The CRB index grabbed the spotlight from other inflation signals.
For example, the federal government reported that sales of new homes took an unexpectedly steep plunge in April. In addition, consumer confidence dropped in May from the upbeat levels of the previous month, according to a business research group.
But the reports gave only a modest boost to the bond market, with prices recovering only partially from early lows.
On Wall Street, stocks drifted to a mostly negative finish.
The Dow Jones industrial average ended almost in neutral, up 1.23 at 3,758.37, after managing to dig out of a shallow hole in the afternoon. However, in the broader market, losers outnumbered gainers by about 3 to 2 on the Big Board, where the volume totaled 215.84 million shares.
Market performance measures mainly comprising New York Stock Exchange-listed issues closed with deficits. The NYSE composite index fell 0.55 to 252.24, and Standard & Poor’s 500 stock index lost 0.83 to 456.50.
Smaller stocks had a similarly unexciting session. The Nasdaq composite index edged 2.05 higher to 735.19.
Among Tuesday’s market highlights:
* The Dow industrials gained some support from Chevron, which climbed 1/2 to 87 after Merrill Lynch & Co. raised the investment rating on the stock.
* One of the Big Board’s most active issues was Lehman Bros., making its NYSE debut. It closed at 18 on its first day of trading after its spinoff from American Express was completed. American Express rose 1 5/8 to 27 5/8 after adjustment for the spinoff.
* One of the day’s more conspicuous losers was Intermagnetics General, which tumbled 4 1/2 to 18 7/8 in heavy trading. An article in this week’s Barrons said the company’s fourth-quarter results will show improvement over the year-earlier levels but that sales have been sinking since 1991.
* Blockbuster Entertainment ended up 1 1/4 to 28 1/8. It was upgraded to “buy” from “market performer” by Robertson Stephens.
* McDonald’s rose 1 to 62. Friday the company announced a 2-for-1 stock split and raised its dividend by 12%.
* Bombay rallied 1 1/4 to 15 7/8 after it posted a 23% rise in May sales at stores that have been open at least a year.
A respectable showing by stocks overseas, despite some heavy selling temporarily during the session, helped Wall Street recover from its lows of the day.
In Tokyo, the 225-issue Nikkei average rose for the third consecutive session, closing at 20,973.59, up 134.62 points. Frankfurt’s 30-share DAX average finished up 9.55 points at 2,127.70, and London’s Financial Times 100-share average rose 4.1 points to close at 2,970.5.
Stocks finished lower in Mexico City, with the Bolsa average losing 1.68 points to end at 2,483.73.
In the currency market, the dollar rose against the yen and most major currencies. At the close, the dollar was quoted at 104.85 Japanese yen, up from 104.28 yen Friday. It rose to 1.647 German marks from 1.643 marks Friday.
The dollar was surprisingly unaffected by the negative economic news. Lately the dollar has been moving in tandem with bonds, but Tuesday was an exception.
“The dollar didn’t come off,” said Dorit Ronnen, foreign exchange trader at the New York office of Bank Leumi Trust Co. “It was a pretty dull market.”
Ronnen said the dollar was lower against the mark in early trading, as traders tested whether central bankers would intervene in support of the currency.
