Bonds, Stocks Mixed Despite Fed Restraint
Yields of most Treasury securities ended narrowly mixed Wednesday despite an apparent decision by the Federal Reserve Board to keep short-term interest rates steady for now. In the stock market, blue-chip stocks rose but the broad range of other issues had a quiet, mixed session.
After concluding its much anticipated two-day meeting, Fed policy-makers issued a brief statement that “there will be no further announcement.” Strategists said the statement was a clear signal that the Fed was not boosting rates for now despite the dollar’s recent slide against other major currencies.
By day’s end, the yield on the Treasury’s main 30-year bond edged up to 7.59% from 7.58% late Tuesday. Yields on shorter-term securities posted slight drops.
Some analysts said they were surprised by the Treasury market’s apparent indifference to the decision to keep monetary policy unchanged for the next six weeks.
The market also seemed to ignore a decline in commodity prices for the second day in a row, a potential sign of lower inflation. The Commodity Research Bureau index, a gauge of daily changes in various commodities, dropped 1.42 on Wednesday to 225.31. It had dropped 3.30 points on Tuesday.
Bond investors tend to buy on signs of lower inflation, since inflation can eat away at the value of fixed-income investments such as Treasury securities. “Normally you’d expect the bond market to do better under those circumstances,” said Robert Giordano, director of economic research at Goldman, Sachs & Co.
The next major scheduled news will be June employment statistics due on Friday, considered the month’s most important economic report.
The dollar stabilized near 99 Japanese yen and rallied from its 14-month low against the German mark after a spokesman for French Prime Minister Edouard Balladur said monetary issues would be a main topic at the Group of Seven summit. The dollar ended at 1.5750 marks Wednesday after a roller-coaster session where it dropped to 1.5650 marks, the lowest since late April, 1993.
A tentative mood prevailed in the financial markets for much of the day. Solid gains for a handful of major stocks hoisted the Dow Jones industrial average up 22.02 points to 3,674.50.
But declines and advances were separated by only about 60 issues at the close on the New York Stock Exchange.
Among the day’s highlights:
* Cyclical stocks that contributed to the rise in the Dow industrials included International Paper, up 1 3/4 to 68 3/4, Aluminum Co. of America, up 1 1/8 to 77 and Caterpillar, up 2 3/4 to 104 1/2.
* Texaco got a lift from Tuesday’s announcement of a plan to reorganize, cutting its payroll and costs. It rose 1 5/8 to 62 1/2 in heavy NYSE volume.
* The Big Board’s volume leader was Dime Bancorp, which fell 1 3/8 to 9 1/4. The company has reached a definitive agreement to merge with Anchor Bancorp. Anchor fell 7/16 to 15 1/2 on the Nasdaq stock market.
* One of the session’s biggest losers was Summa Four, which tumbled 10 1/4 to 11 3/4 in heavy Nasdaq volume. The company released an earnings preview that disappointed Wall Street.
* Another casualty of heavy selling was Salomon, which lost 2 to 45 1/2. The parent of the Salomon Brothers brokerage said it expects to report an after-tax loss of $200 million for the second quarter.
Tokyo stocks ended with moderate losses as dismay over the dollar’s fall against the yen induced dealer position adjustment. The 225-share Nikkei average closed off 205.34 points at 20,629.03.
Frankfurt’s DAX average ended up 3.01 points at 2,035.70, while London’s Financial Times 100-share average closed 18.3 points lower at 2,946.7.
Gold prices were lower. On the Commodity Exchange in New York, gold for current delivery fell $2.10 per troy ounce to $383.40.
