FINANCIAL MARKETS : Bond Yields Up, Stocks Adrift; Dow Gains 1.95
Long-term Treasury bond yields rose to the highest level in two weeks Tuesday, and stocks closed mixed as investors worried about government debt auctions this week and whether the Federal Reserve Board will nudge interest rates upward.
The yield of the 30-year bond rose to 7.57% from 7.54% on Monday; its price, which moves in the opposite direction, fell 5/16 point, or $3.13 per $1,000 in face value. The highest yield so far this year was 7.75%, on July 11.
The Dow Jones average crept up 1.95 to 3,755.76 and broader stock market indicators made minor moves.
The Treasury Department’s note auction drew mediocre demand, selling $17 billion in three-year notes at an average yield of 6.61%. Today, the Treasury will sell $12 billion of 10-year notes; on Thursday, $11 billion of 30 1/4-year bonds will be sold.
Bond market interest rates rose after the auction report was released.
Tuesday’s results were lackluster and did not alleviate concern about the bids the remaining issues will receive, said Robert Brusca, chief economist at Nikko Securities International. Slack demand for the new debt securities could depress their price.
“There is lots of apprehension about the other auctions,” he said.
The bond and stock markets, however, have been unsteady since last Friday, when July’s stronger-than-expected employment figures renewed worries that the Federal Reserve may again raise interest rates when its policy-making panel meets next Tuesday.
The Fed has gradually nudged interest rates higher since February, seeking to restrain economic growth and forestall inflation. Bond investors dislike news of strong growth and inflation, which erode the value of securities, such as Treasuries, with fixed interest rates.
The market is particularly uneasy because reports on July inflation and retail sales, due later this week, can be expected to influence the Fed’s next move, said Ward McCarthy, managing director of Stone & McCarthy Research Associates Inc.
“Money managers are unwilling to get involved in the auctions in the face of all that uncertainty,” McCarthy said.
Short-term Treasury securities were steady to down 1/32 point and intermediate maturities were unchanged to down 1/8 point, the Telerate Inc. financial information service reported.
The Lehman Bros. Daily Treasury Bond Index, which reflects price movements on bonds with maturities of one year or longer, fell 0.97 to 1,212.09.
Yields on three-month Treasury bills fell to 4.52% as the discount dropped 0.05 percentage point to 4.42%. Six-month yields rose to 5.10% as the discount rose 0.01 point to 4.92%. One-year yields were unchanged at 5.57% as the discount held steady at 5.29%.
On Wall Street, the New York Stock Exchange composite index finished little changed at 252.96, off 0.03. Standard & Poor’s 500 inched up 0.04 to 457.93; the Nasdaq composite index moved forward 2.14 to 722.61.
Gainers trailed losers on the NYSE, where about 10 stock prices fell for every nine that rose. Trading was subdued, with Big Board volume amounting to 259.03 million shares, compared to 217.68 million Monday.
“It’s a matter of waiting and nobody’s being courageous,” said Alfred E. Goldman, director of technical research at A. G. Edwards & Sons Inc. “Investors aren’t doing anything aggressive before the FOMC meeting next week.”
Technology issues received some extra attention after The Wall Street Journal’s influential Heard on the Street column reported that one investment professional favors the group.
Jeffrey N. Vinik, manager of the huge Fidelity Magellan Fund, has placed a lot of faith in semiconductor companies. Nasdaq-listed Intel spurted 1 1/4 to 59 1/4.
Among the market highlights:
* American Home Products unleashed a hostile $8.5-billion bid for American Cyanamid, sending American Cyanamid shares up 2 3/4 to 93 3/4 on the Big Board.
* American Home gained 1/4 to 56 1/4. Arbitragers said it appeared that Cyanamid would have a hard time finding a white knight since American Home’s aggressive move.
* Chemical issues rose in response to recent positive comments from several Wall Street firms. Union Carbide gained 1 1/4 to 32 5/8; Lyondell rose 1 1/4 to 28 5/8; Dow Chemical added 2 to close at 72 1/4.
* Molten Metal Technology soared 4 1/2 to 22 3/4 in Nasdaq trading on news of an alliance with Martin Marietta. The two will clean up pollution at U.S. government sites, using Molten’s technology. Martin Marietta rose 3/8 to 47.
Losses overseas didn’t help Wall Street. Share prices closed lower in Frankfurt, with the DAX 30-share average falling 20.47 points to 2,164.20. Tokyo’s 225-share Nikkei average ended the session down 45.61 points at 20,590.22.
London’s Financial Times average of 100 shares closed 3.3 points lower at 3,168.6.
In Mexico City, the Bolsa index finished down 8.94 points at 2,594.96, but advances outnumbered declines 44 to 42 in the wider market.
Meanwhile, the dollar weakened as bond yields rose after the disappointing Treasury auction. Higher interest rates improve the dollar’s rate of return.
The dollar didn’t lose much ground to the Japanese yen or the German mark. It surprised traders by falling significantly in relation to the Canadian dollar, which was uncharacteristically in demand overseas.
In New York, the dollar fell back against the Japanese yen a bit Tuesday, to 101.28 yen, compared to 101.53 Monday. The greenback fell to 1.334 Canadian dollars, its lowest level since early June. One U.S. dollar fetched 1.377 Canadian dollars on Monday.
The dollar also edged downward to 1.582 German marks from 1.583 marks.