FINANCIAL MARKETS : Bond Yields Fall on News of Low Inflation
Treasury bond yields plunged Friday as investors were buoyed by new indications the economy is finally slowing and inflation may no longer be a threat on the horizon.
At the close, the yield on the bellwether 30-year bond was 7.73%, down sharply from Thursday’s 7.83%, while its price, which rises when the yield falls, shot up 1 3/16 point, or $11.87 per $1,000 in face value.
The bond’s yield was the lowest since Sept. 15 when it fell to 7.63, but it was still within the range that has dominated bond trading over the last six months.
The market was pushed by a government report that showed the economy grew during the fourth quarter of 1994 at an annualized rate of 4.5% with no evidence of alarming inflation. The news was bolstered by optimistic comments this week by Federal Reserve Chairman Alan Greenspan, who said the Fed may soon be through raising interest rates.
Higher interest rates can diminish the value of investments like bonds which pay a fixed rate over a period of time.
Blue-chip stocks meanwhile, closed lower as investors sold the shares of economically sensitive companies, on concerns the economy is headed for a slowdown. But stocks in the broader market held steady.
The Dow Jones average closed 12.45 lower at 3,857.99, while in the broader market, advancing issues led decliners by about 4 to 3 on the New York Stock Exchange. Big Board volume totaled 339.49 million shares, up from 311.99 million on Thursday.
Broad market indexes performed better than the blue chip gauge. The NYSE’s composite index rose 0.97 point to 255.89. The Standard & Poor’s 500-stock index rose 2.07 points to 470.39. The Nasdaq composite index of mostly smaller issues rose 1.35 points to 758.91. But the American Stock Exchange’s market value index fell 0.99 point to 436.75.
Among the market highlights:
* Investors sold economically sensitive stocks, worried that these companies would take the brunt of any downturn in the economy. The 30 Dow index components were led lower by Alcoa, down 3 1/2 at 81; International Paper, down 2 1/4 at 73 1/4; DuPont, off 1 1/2 at 54 1/2; and Union Carbide, which fell 1 1/8 to 52 5/8.
* Banking and brokerage stocks advanced, led by Chemical Bank, up 7/8 at 38 3/4, and Morgan Stanley, up 2 1/4 at 60 1/8.
* Meanwhile, investors continued to respond to earnings reports. Walt Disney climbed 3 to 50 1/4 after reporting sharply higher earnings on Thursday.
* McDonald’s Corp. shares rose 1 1/2 to 32 1/4 after reporting higher earnings.
* Technology stocks ended mixed after several days of losses. Compaq fell 1 1/2 to 35 5/8, but IBM added 1/8 to 72 1/2. Apple rose 3/8 to 39 7/8, but Microsoft ended unchanged at 59 7/8.
* Legent Corp. tumbled 4 to 30 1/4 on concern about revenue growth.
* Texas Instruments rose 2 1/8 to 71 5/8 after its fourth-quarter income came in slightly above analyst forecasts.
Overseas stocks closed mixed. Mexico’s Bolsa index fell 60.96 points, or 3.02%, to close at 1,957.65.
Tokyo’s 225-share Nikkei average closed up 33.51 points at 18,104.35. In Frankfurt, the 30-share DAX average ended at 2,031.70 points, up 1.01 points, while London’s Financial Times 100-share average finished up 14.9 points at 3,022.2.
Elsewhere, precious metals futures prices plummeted on New York’s Comex after new government figures suggested inflation is under control. February gold fell $4.90 to $376.80 an ounce, while silver silver plummeted 12 cents to $4.675 an ounce.
