FINANCIAL MARKETS : Bond Rates Rise Again; Stocks End Mixed
Long-term bond yields resumed their advance Wednesday, brushing off reassuring inflation data and the Federal Reserve Board’s latest effort to slow the economy.
On Wall Street, stocks closed mixed, with financial issues under new pressure from rising interest rates. The dollar, meanwhile, was clipped by profit taking.
In the bond market, the day had promised to go well, traders said. On Tuesday the Fed raised short-term interest rates for the sixth time this year in a further attempt to slow the economy and hold down inflation.
What’s more, the government’s report Wednesday on October consumer inflation was favorable: Prices rose just 0.1% in the month, smallest in six months. Many analysts had expected a 0.2% rise, matching September.
Bond yields initially dropped after the inflation report. But sellers took control as the day wore on.
By the close the yield on the 30-year Treasury bond, which had eased from 8.07% on Monday to 8.03% Tuesday, jumped back to 8.09%, hovering just under the three-year high of 8.16% reached on Nov. 7.
With the latest economic reports pointing to continued strength, many bond players simply don’t believe that interest rates have yet peaked. As for the low October inflation figure, “Inflation is a lagging indicator,” said Marcello Frustaci, a trader at Daiwa Securities America. “The economy is a lot stronger than the inflation numbers tell you it is.”
“It’s symptomatic of the same bearish trend” for bonds that has prevailed all year, said Kim Rupert, economist at MMS International in San Francisco.
In the stock market, the Dow industrials closed with a gain of 18.84 points to 3,845.20, helped by big jumps in two stocks. But the broad market didn’t follow the Dow. Losers topped winners by 12 to 10 on the NYSE, and broader market indexes closed mixed.
A total of 173 stocks hit new 52-week lows on the NYSE, while only 31 hit new highs.
Traders noted that many investors can’t develop any conviction about stocks, despite recently strong corporate earnings, because interest rates continue to rise.
“The last time rates were up here, the Dow was at 2,900,” said Louis Todd, trader at J.C. Bradford & Co. “The market’s high in terms of where rates are.”
Also weighing on stocks and bonds Wednesday was a reversal in the dollar, which had been rebounding. In New York the dollar closed at 1.551 German marks and 98.35 Japanese yen, down from 1.556 and 98.76 on Tuesday.
Among Wednesday’s highlights:
* Financial stocks were broadly lower, reacting to the latest rise in interest rates. Higher rates can squeeze profits of banks and insurers. Among the day’s losers, Citicorp fell 3/4 to 45 1/8, Wells Fargo sank 2 to 144 3/8, Banc One lost 5/8 to 26 3/8 and Mellon dropped 1 to 34 1/4.
But U.S. Trust jumped 3 1/8 to 64 5/8. It said it is in talks to sell its securities-processing business.
* The Dow was pumped up as Boeing surged 1 3/8 to 45 1/8. The Wall Street Journal reported that major aircraft leasing firms are close to signing new orders with Boeing and with rival McDonnell Douglas, which rose 2 3/4 to 142 1/2.
Also within the Dow, Kodak rose 2 to 49 3/8 in the wake of new cost-cutting moves.
* Takeover deals and rumors moved several stocks. National Gypsum soared 12 1/16 to 44 13/16 after investment firm Delcor Inc. made a $940 million bid.
Renewed takeover or restructuring talk also lifted HMO Wellpoint Health 2 3/8 to 29 5/8, gaming firm Caesars World 1 3/8 to 42 1/8 and cable TV giant Tele-Communications 3/4 to 23 3/8.
* Among new issues, PIMCO Advisors, parent of Newport Beach-based money manager Pacific Investment Management, sold 4.6 million units at 18 1/8 each. The stock closed at 17 3/4 on the NYSE.
In foreign markets, a last-minute rally boosted Mexico City’s Bolsa index 51.26 points to 2,510.41.
But in Tokyo the 225-share Nikkei index resumed its fall, dropping 85.02 points to 19,306.66. In London the FTSE 100 index rose 11.1 points to 3,146.5. German markets were closed for a holiday.
