FINANCIAL MARKETS : Bond Yields Surge; Blue Chips Up Solidly
Long-term bond yields surged Wednesday as investors found little reassurance in the news of unexpectedly tame inflation last month. Blue-chip stocks racked up solid gains.
The yield on the Treasury’s key 30-year bond rose to 8.09% from Tuesday’s 8.03%. Its price, which falls when yields rise, dropped 22/32 point, or $6.88 per $1,000 in face value. Prices of shorter-term maturities posted smaller losses.
Blue-chip stocks posted moderate gains for most of the session until a late burst of trading propelled it decisively higher. The Dow Jones industrial average gained 18.84 points to close at 3,845.20.
The Labor Department reported that consumer prices rose just 0.1% in October, the best inflation performance in six months. Many analysts had expected an increase matching the 0.2% rise in September.
The so-called core rate, which excludes the volatile food and energy sectors, was also tame in October, rising just 0.2% for the second month in a row.
Bond prices initially shot higher after Wednesday’s good news on inflation, which over a bond’s life can eat away at the value of the preset interest payments.
But as the day wore on, investors apparently decided that October inflation was old news.
Unlike bond traders, stock investors were buoyed partly by the consumer price index report.
Analysts said investors were also shopping for a few select stocks among blue chips.
But as investors picked at stocks, analysts said the market as a whole was unsettled by bonds’ inability to add to Tuesday’s rally, which was sparked by the Federal Reserve Board’s interest rate hike.
Stock investors don’t like higher rates because they raise corporate costs, which cut into earnings and stock valuations, and they make bonds more attractive relative to equities.
In the broader market, declining issues outnumbered advancers by about 7 to 6 on the New York Stock Exchange, where volume totaled 296.99 million shares, down from 339.91 million on Tuesday.
Broad market indexes were generally higher. The NYSE’s composite index rose 0.19 point to 254.71. The Standard & Poor’s 500-stock index rose 0.57 point to 465.60, and the Nasdaq composite index rose 0.62 point to 769.64. At the American Stock Exchange, the market value index fell 0.22 point to 448.39.
Meanwhile, the dollar weakened as foreign-exchange traders took profits from a surge the previous day, when the currency derived strength from the Fed’s sharper-than-expected rate increase.
In New York, the dollar closed at 1.551 German marks and 98.35 Japanese yen, down from 1.556 and 98.76, respectively, on Tuesday.
Among the market highlights:
* Financial stocks also lost ground in the face of higher interest rates. Morgan Stanley fell 1 to 61 7/8 after reporting a 35% drop in its third-quarter profit.
* The Dow industrial average was boosted by strong gains in four component issues. Boeing rose 1 3/8 to 45 1/8, Eastman Kodak gained 2 to 49 3/8, Procter & Gamble was up 1 1/2 to 63 7/8 and United Technologies rose 1 to 59 5/8.
* National Gypsum soared 12 1/16 to 44 13/16 after investment firm Delcor Inc. offered to buy the company for about $940 million.
* Digital Equipment rose 2 5/8 to 36, after Goldman, Sachs & Co. reportedly added the stock to its “recommended” list.
* McDonnell Douglas rose 2 3/4 to 142 1/2 along with Boeing on a published report that commercial jet leasing companies are close to signing major orders.
* U.S. Trust jumped 3 1/8 to 64 5/8. It said it is in talks on the sale of its securities-processing business. A source close to the deal said Chase Manhattan is the prospective buyer.
Overseas stocks were mixed. A last-minute rally sparked by Telefonos de Mexico took Mexican stock prices to a sharply higher close. The Bolsa ended 51.26 points higher at 2,510.41, a gain of 2.08%.
Tokyo’s 225-share blue-chip average ended down 85.02 points at 19,306.66, while London’s Financial Times 100-share average rose 11.1 points to 3,146.5. German markets were closed for a holiday.
