FINANCIAL MARKETS : Orange County Bond Woes Cut T-Bill Yields
The Orange County financial crisis pushed Treasury bill yields sharply lower Tuesday as investors, unnerved by rumors that the county might file for bankruptcy protection, squirreled away money in short-term U.S. securities.
News of the bankruptcy filing came after the market’s close.
Meanwhile, falling interest rates failed to lift spirits on Wall Street. Stocks struggled and ended the day mostly lower.
Behind the money flows into T-bills were concerns that the Orange County investment fund’s woes could send broad ripples through the financial markets and perhaps cause a new round of dumping of long-term muni and government bonds.
As investors fled for the safety of short-term securities, the yield on one-year Treasury bills fell to 6.96% from 7.12% on Monday.
“People are putting cash into the bill market. No one really knows how all this will land,” said Eric Hamilton, a market analyst at Technical Data in Boston.
Long-term interest rates also fell, though not as sharply. The key 30-year T-bond yield closed at 7.87%, down from 7.92% on Monday.
Uncertainty over Orange County’s finances had a muted impact on the financial market for municipal securities, in part because most of the county’s bonds are so thinly traded and because the rumors about bankruptcy were disbelieved for most of the day.
In the stock market, the Dow Jones industrial average, which was moderately higher at midday, veered downward in the afternoon action before computer-guided buy orders returned it to a nearly neutral reading. The blue-chip index, off more than 25 points at its worst, ended at 3,745.95, up 4.03 points.
Broader measures fell, however, while losers outnumbered gainers on the New York Stock Exchange by about 11 to 8.
The market’s uninspiring performance was traced in part to lingering disappointment over news Monday that investors in Fidelity’s flagship Magellan Fund--the country’s largest mutual fund--won’t receive a dividend at the end of the year.
Although Fidelity said the decision reflected an accounting error and apparently wasn’t due to problems in the stock and bond markets, the news “caused a moment of reflection,” particularly for bearish investors, said Alfred Goldman, director of technical market analysis at A.G. Edwards & Sons in St. Louis.
Among Tuesday’s highlights:
* Shares of major airlines tumbled after financier Warren Buffet was quoted as saying his USAir investment was a mistake, adding that “no airline is going to be a substantial business.”
USAir fell 1/8 to 4 3/8, AMR, parent of American Airlines, fell 1 1/8 to 50 3/4, UAL dropped 1 1/8 to 91 7/8 and Delta Air Lines fell 3/4 to 48 3/4.
* Some private muni bond insurance companies dropped on fears that they could be hit hard covering losses on defaulted Orange County bonds. MBIA fell 1 3/4 to 49 1/8 and Ambac lost 7/8 to 32 3/8.
* Computer networking products company NetWorth sank 5 1/8 to 9 5/8 after it told analysts it expects lower revenue in the second quarter than in the first.
* BankAmerica dropped 1 1/4 to 40 1/2. Traders cited PaineWebber’s downgrading of the stock to “neutral” from “buy.”
* Megatest, which makes testing equipment for the semiconductor industry, said it expects a loss of as much as $4 million on continuing operations for its fiscal first quarter ended Nov 26. The stock plunged 4 1/2 to 5 3/8.
* Intelligent Electronics fell 3 1/8 to 9 3/8 after the company’s chairman said he has asked an independent committee of the board to review the marketing practices of the nation’s largest computer reseller.
* ECI Telecommunications fell 3 1/8 to 14 after two brokerages reduced their estimates for the Israeli company.
* Intel rose 3/8 to 64 1/2 in heavy trading. News of a flaw in the Pentium microprocessor had triggered a selloff. Selling overseas set a somber example for U.S. stocks to follow.
In Europe, Germany’s 30-share DAX average fell 24.24 points to 2,046.88. London’s Financial Times 100-share average declined 17.4 points to 3016.1. In Mexico, the Bolsa fell 7.06 points to 2,514.36.
Tokyo’s 225-share Nikkei average ended at 19,340.47, up 34.81 points.
Meanwhile, the dollar declined in relation to most other major currencies. It closed at 100.08 Japanese yen in New York, down from 100.48 on Monday. It fell to 1.572 German marks from 1.573.
