FINANCIAL MARKETS : Bond Yields at 11-Month Low; Dow Soars 44
Treasury bond yields plunged to 11-month lows Wednesday in a powerful rally spurred by growing confidence among investors that the slowing economy is not likely to aggravate inflation.
The bond rally and investor enthusiasm about corporate earnings provided a big boost for stocks, which shot up to record highs for the second consecutive session.
At the close, the yield on the Treasury’s benchmark 30-year bond tumbled to 7.23%, its lowest closing since it finished at 7.22% on June 6, 1994. It ended at 7.31% on Tuesday. Its price, which moves inversely to the yield, jumped 1 point, or $10 per $1,000 in face value.
The blue-chip Dow Jones industrial average soared 44.27 points to finish at 4,373.15, well above its closing record high of 4,328.88 set Tuesday.
Bond prices rose modestly in the early going, extending Tuesday’s gains. The increases accelerated in early afternoon as more investors and traders jumped into the market, snapping up a range of maturities.
Analysts cited increased confidence among market players that higher interest rates have slowed the economy to a pace that will not push inflation higher.
Figures released early Wednesday appeared to suggest sluggish economic growth.
The Commerce Department reported that the government’s chief gauge of future economic activity, the index of leading indicators, fell 0.5% in March, the biggest drop in two years.
In a second report, the department said orders to U.S. factories fell 0.1% in March. Economists had expected orders to rebound from a drop of 0.3% in February.
Separately, the Treasury Department said it will sell $30 billion of new securities in its quarterly refunding next week. The refunding will be composed of $17.5 billion in three-year notes due May 15, 1998, to be sold Tuesday; and $12.5 billion in 10-year notes due May 15, 2005, to be sold Wednesday.
On Wall Street, advancing stocks outnumbered decliners by nearly 2 to 1 on the New York Stock Exchange. Big Board volume was a hefty 392.89 million shares, up from 302.86 million Tuesday.
Some broad-market indexes also rallied to surpass recent record levels.
The NYSE’s composite index rose 2.51 points to 279.94, above Tuesday’s record close of 277.43. The Standard & Poor’s 500-stock index rose 5.62 points to 520.48, topping its record of 514.86. The Nasdaq composite index advanced 8.47 points to 850.26, passing its record of 843.98 set Friday.
The American Stock Exchange’s market value index climbed 2.68 points to 483.37.
Among Wednesday’s market highlights:
* The Dow industrial average components were led higher by Eastman Kodak, which rose 3 to 60 1/2 after the company told analysts it could continue its strong earnings growth reported in the first quarter.
* Airline shares rebounded as fears of rising jet fuel prices and an air fare war sparked by Continental Airlines abated. American Airlines parent AMR rose 2 3/8 to 68 3/4, United Airlines parent UAL gained 1 5/8 to 118 3/4, Delta Air Lines was up 7/8 at 64 3/8 and Continental Airlines Class B shares rose 3/8 to 16 5/8.
* Pharmaceutical company shares rose after the Financial Times reported that world drug sales recovered sharply this year after languishing on sharp cuts in health care budgets. American Home Products rose 2 1/8 to 78 3/4 and Pfizer climbed 1 7/8 to 87 1/2.
* PepsiCo rose for the second day, gaining 1 3/4 to 44 3/4 after posting strong first-quarter earnings.
* Fluor lost 1 3/8 to 51 5/8 after it was downgraded by Smith Barney.
* Scios Nova tumbled 3 to 3 1/2 after it reported disappointing clinical trial results for its flagship Auriculin drug for treating acute kidney failure.
Overseas markets were mixed. Frankfurt’s 30-share DAX average fell 7.24 points to 2,028.68, while London’s FTSE-100 average gained 14.4 points to close at 3,262.6. Mexico’s Bolsa index closed 34.61 points higher at 2,019.57, its highest level since closing at 2093.98 on Jan. 31.
Japan’s financial markets were closed because of national holidays and will reopen Monday.
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MONEY MARKET FUNDS: D8
