FINANCIAL MARKETS : Yields Tumble as Dollar Rises; Dow Up 28.26
Treasury bond yields dropped sharply Monday, helped by a stronger dollar and technical factors a day before the Federal Reserve Board was expected to raise short-term interest rates again.
Stocks, taking a cue from bonds, also staged a rally. The Dow industrial average jumped 28.26 points to 3,829.73 in moderate trading, recouping Friday’s 20-point loss.
The bond market experienced its biggest rally in two weeks, as buyers stepped up. The 30-year Treasury bond yield slumped to 8.07% from 8.15% on Thursday, the last day of trading before Friday’s Veterans Day observance.
Analysts said a surprise rally in the dollar helped boost sentiment in the bond market. The dollar surged to 1.544 German marks in New York, up from 1.530 on Friday and the highest since Oct. 14.
The dollar also advanced to 98.31 Japanese yen from 97.68.
Expectations of another Fed rate increase--the sixth such increase this year--bolstered the dollar Monday, currency traders said. Analysts have argued that higher U.S. interest rates would eventually encourage foreign investors to invest in U.S. bonds and money market instruments, thereby strengthening the dollar.
There were reports of heavy overseas dollar buying by big investment funds and selling of German marks.
The dollar was further aided by Treasury Secretary Lloyd Bentsen’s comment that he was pleased with the recent U.S. intervention to boost the battered dollar.
In the bond market, traders said buyers emerged partly on the belief that today’s expected Fed rate boost is already factored into bond yields.
Indeed, the federal funds rate--the overnight loan rate among banks, which the Fed influences--jumped to 5.75% by Monday’s close from 4.75% on Friday, suggesting that the market believes the Fed could ratchet rates up a full point.
Many economists, however, believe the central bank will raise rates by half a point in its campaign to slow the economy.
Some traders warned that Monday’s bond buying was driven by “short covering” by traders who had previously bet on rising interest rates.
True investors remain wary of committing to bonds at current yields, many experts say.
“If we saw any substantial retail (small-investor) selling, this market would fall apart in a second,” said Ken Sullivan, a trader at First Chicago Capital Markets.
On Wall Street, meanwhile, NYSE winners topped losers by about 13 to 10. But losers had a small edge in the Nasdaq market, even as technology stocks rallied.
Analysts said stocks are likely to follow the bond market’s lead--up or down--in the wake of whatever move the Fed makes today.
Among Monday’s highlights:
* Tech issues surged after software companies Powersoft and Sybase announced a billion-dollar stock-swap merger. Powersoft rocketed 7 7/8 to 69 1/4, while Sybase, the acquirer, lost 2 1/16 to 46 5/16.
Among other tech issues, Computer Sciences jumped 2 1/4 to 47 7/8, Microsoft leaped 2 1/4 to 64 1/2, Lotus Development gained 1 1/4 to 39 1/4, Apple zoomed 1 3/8 to 42 1/2 and Intel was up 1 5/8 to 62 1/4.
* Chrysler led many blue chips higher, up 3 1/8 to 49, after investor Kirk Kerkorian threatened a fight to boost the stock’s value.
Other big-name stocks gaining included Kodak, up 1 7/8 to 47 5/8; Philip Morris, up 1 to 62 5/8, and Disney, up 1 to 43.
Overseas, London’s FTSE 100 index rose 19.4 points to 3,095.3, while Frankfurt’s DAX index added 10.94 points to 2,089.29. In Tokyo, the Nikkei average eased 22.91 points to 19,261.45.
In Mexico City, the Bolsa index dropped again, losing 40.35 points to 2,486.64.
Market Roundup, D10
Interest Rates
30-year T-Bond: 8.07%
1-year T-Bill: 6.49%
