FINANCIAL MARKETS : Yields Rise on Inflation Concerns
Lingering concerns about the dollar and comments by a Federal Reserve Board official that economic growth remains surprisingly strong sent Treasury bond yields higher in quiet trading Tuesday. But shorter-term securities were mixed.
At the close, the yield on the Treasury’s main 30-year bond rose to 7.86% from 7.82%, pushing its price down 15/32 point, or $4.68 per $1,000 in face value. The yield, which moves in the opposite direction, rose to 7.86% from 7.82% on Monday.
The dollar rebounded slightly against key currencies Tuesday but was well short of making up Monday’s loss that followed a slim victory by German Chancellor Helmut Kohl. But with little other news to trade on, bond traders said concerns persisted that a weak dollar would prompt foreign investors to move out of U.S. securities.
“The only thing that’s driving the market is the dollar,” said Frank Sanella, senior money market analyst at Technical Data in Boston.
Meanwhile, Federal Reserve Board Governor Susan Phillips said in an address at a savings bank conference that the U.S. economy is growing at a rate that continues to surprise many analysts. Phillips’ comments reignited worries about an overheated economy, which could foreshadow higher inflation and prompt the Fed to increase interest rates to curb price pressures.
Inflation and higher rates reduce the value of fixed-income investments like bonds.
With no economic reports to influence the market and a new supply of two- and five-year notes coming next week, dealers refrained from major moves. Traders said the impact of the Fed official’s comments was exaggerated because of light activity.
On Wall Street meanwhile, stocks were mostly lower, weakened by investor apprehension over the higher interest rates that undermined strength from improved corporate earnings results.
Third-quarter earnings reports released during the day lifted some individual stocks, but the 30-stock Dow Jones industrial average finished 6.39 points lower at 3,917.54. The Dow average had fallen as much as 20 points around midday.
In the broader market, decliners continued to lead on Tuesday by about 3 to 2, on Big Board volume totaling 259.74 million, up from Monday’s 239.49 million shares.
Adding to the market’s woes, the weak dollar raised the possibility that the Fed could be forced into an interest rate hike to bolster the greenback whether the economy warranted it or not.
In New York trading, the dollar finished at 1.503 German marks, up from Monday’s a two-year low of 1.499 marks. Against the Japanese yen, the U.S. currency rose to 97.75 yen, from 97.65.
Companies reporting earnings results Tuesday dominated the most active list.
Among the market highlights:
* Chase Manhattan rose 3/4 to 35 3/4 and Citicorp rose 1 1/4 to 44 1/8. Wells Fargo shares eased 1/8 to 149 3/8. All three reported hefty earnings increases.
* Philip Morris slipped 1/4 to 61 1/2 after its earnings just barely exceeded Wall Street forecasts.
* Technology issues were generally strong and kept the Nasdaq to a narrow decline. The Nasdaq composite index fell 0.97 point to 764.81.
* Apple Computer rose 1 5/8 to 41 3/8 and Sun Microsystems rose 1 7/8 to 32 1/4. Both companies reported stronger-than-expected earnings late Monday. Intel finished up 1/16 to 58 1/4 on solid third-quarter profits.
* Sun Microsystems rose 1 7/8 to 32 1/4 on surprisingly strong third-quarter earnings. Dell Computer was a notable exception to the trend, falling 1 1/8 to 41 1/4.
* Merrill Lynch gained 7/8 to 35 1/4. The brokerage house reported third-quarter earnings of $1.10 per share, in line with Wall Street expectations.
Overeas markets closed mixed. In Europe, London’s Financial Times 100-share average x fell 34.9 points to 3,085.3, while Frankfurt’s 30-share DAX average closed at 2,084.76, down 6.12. Meanwhile, Tokyo’s Nikkei average gained 34.11 points to end at 19,992.40. In Mexico, the Bolsa index closed off 30.96 points at 2,725.01.
Market Roundup, D13
Interest Rates
30-year T-Bill: 7.86%
1-year T-Bill: 6.05%
