FINANCIAL MARKETS : Bond Yields Take Big Header : Markets: Drop close to the 7% level ends best one-week rally in almost six years. Stocks steady but still close off 16.
This week’s spectacular Treasury market rally snowballed Friday amid further evidence of economic weakness, sending bond yields plummeting to within a hair of the key 7% level, ending the best one-week rally in almost six years.
Enticed by three straight previous days of gains, gleeful traders and investors went on a buying spree after the Labor Department reported the nation’s first drop in jobs in more than two years in April.
By day’s end, the yield on the Treasury’s key 30-year bond sank to 7.02%, the long bond’s lowest close since it fell to 6.97% on March 28, 1994. The yield closed Thursday at 7.16%.
The bond’s price, which rises when yields fall, rose 1 27/32 points, or $18.44 per $1,000 in face value, the market’s biggest one-day price increase in nearly a year.
The day’s price surge nearly matched a two-point jump in prices in the preceding two days that came on anticipation of the anemic jobs data. Market strategists said the actual statistics came in even weaker than expected.
The rally was broad-based, with prices of short-term Treasury securities rising 11/32 point to 1/2 point and intermediate maturities increasing 27/32 point to 1 9/32 points, the Dow Jones Telerate Inc. financial information service reported.
The Labor Department reported Friday morning that the nation’s unemployment rate soared to 5.8% in April, the highest rate in seven months. The number of payroll jobs slipped by 9,000 last month--the first decline since March, 1993. However, analysts had predicted that payrolls would grow by close to 200,000 and the unemployment rate would remain at 5.5%.
But on Wednesday, the U.S. Bureau of Labor Statistics warned about seasonal quirks in its monthly jobs report, which spurred many Wall Street economists to revise their estimates downward.
The deteriorating labor situation boded poorly for the economy but was cheered by investors in securities that pay fixed amounts of interest--whose value is hurt by inflation triggered by economic strength.
Analysts said the apparent spread in economic weakness has convinced many fixed-income investors that the Federal Reserve Board will be less likely to raise interest rates soon, and may even lower them.
Meanwhile, stocks ended a busy session at moderately lower levels on Friday, after recovering some earlier losses tied to the sluggish economic news which raised fears about a downturn in corporate profits.
The Dow Jones average closed down 16.26 points at 4,343.40 after losing more than 30 points early in the session. For the week, it gained 22.13 points.
Advancing issues led decliners 1,245 to 1,061 on active trading of more than 342 million shares on the New York Stock Exchange.
Broad-market indexes finished mostly lower. The NYSE’s composite index fell 0.01 point to 279.90. The Standard & Poor’s 500-stock index fell 0.42 point to 520.12. The Nasdaq index fell 3.22 point to 843.53.
But the American Stock Exchange index rose 0.20 point to 482.62.
Among Friday highlights:
Stock investors dumped the shares of economically sensitive companies, but they bought some shares that tend to perform well in a low-interest environment.
The blue-chip average was led lower by deep cyclical issues, such as International Paper, which fell 2 1/2 to 76 3/8; Alcoa, down 2 1/4 to 41 5/8, and General Motors, which lost 3/4 to 42 1/2.
Transportation stocks, which also tend to perform poorly during tough economic times, moved lower, pushing the Dow Jones transportation average down 27.95 points to 1,624.10.
Airline stocks fell on a report that Trans World Airlines may break rank with rivals and ditch a three-month policy of capping travel agents’ commissions.
Traders worried about the impact of the potential move on airline profits. UAL Corp. fell 3 1/8 to 115 1/2, AMR Corp. lost 1 1/2 to 67 1/8, Delta Air Lines was off 1 3/8 to 63 and Southwest Airlines retreated 3/4 to 21 7/8.
* W. R. Grace climbed 4 7/8 to 58 1/3 after the head of the company’s National Medical Care Inc.’s health care unit bid $3.5 billion for the company.
* Stormedia, an initial public offering, rose 2 3/4 to 18 3/4.
* Citicorp gained 7/8 to 49 1/2.
Overseas markets closed lower. Germany’s 30-share DAX average lost 20.96 points to end at 2,023.83. London’s Financial Times 100-share average closed at 3,251.7, off 12.6 points. The Japanese and Mexican markets were closed for holidays.
Meanwhile, The dollar steadied against the yen and snapped a three-day decline vs. the mark, buoyed by the bond market’s rally and speculation that there may be some resolution in U.S.-Japan trade talks.
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Yields Continue to Fall
Yields on 30-year Treasury bonds continued to fall Friday amid further evidence of economic weakness. Weekly closes since October, 1994:
May 1995: 7.02
Source: TradeLine
