FINANCIAL MARKETS : Yields Fall to 13-Month Low; Dow at Record
Treasury bonds resumed their powerful rally Tuesday, pushing long-term interest rates to their lowest level in more than 13 months, as blue-chip stocks hit record highs for the second straight day.
The dollar rose sharply against the German mark and edged up against the Japanese yen.
Bond traders were brimming with enthusiasm over recent evidence of an economic slowdown. There is a growing perception that the Federal Reserve Board has achieved its goal of easing economic activity to a non-inflationary pace.
The benchmark 30-year bond yield plunged as low as 6.899%, but rose to close at 6.940% after a three-year Treasury note auction drew below-average demand. Its price, which moves inversely from yield, gained 1 3/32 points, or $10.94 per $1,000 invested. The yield on the closely watched long bond has not been as low since March 28, 1994, when it closed at 6.97%.
Stocks veered up and down through a volatile session that finished with the Dow Jones industrial average climbing 6.91 points past Monday’s high to a new peak of 4,390.78.
In the first leg of its $30-billion quarterly refunding, the Treasury sold $17.5 billion in three-year notes at an average yield of 6.165%, down from 7.34% at the last auction Feb. 7.
The rise in the Dow industrials reflected gains in just a few stocks, mainly economically sensitive ones, including Caterpillar. Broader market indicators didn’t fare as well and the session produced a mixed showing.
The New York Stock Exchange composite index edged 0.06 point above the previous high reached Monday, to 281.74. But Standard & Poor’s 500-stock index slipped 0.40 point to 523.56. Beyond the Big Board, stocks also turned in a mixed performance. The Nasdaq market index slid 1.12 points to 848.17.
Gaining Big Board stocks beat losers by about 4 to 3 on volume totaling 365.12 million shares, up from Monday’s 291.38 million.
Wall Street started out on solid footing, with virtually all indicators advancing, partly because of computer-guided program buying. But the market stumbled later in the morning even as bonds managed to sustain their upward momentum.
The robust U.S. bond market had a favorable impact on European markets, and stock prices advanced in Frankfurt, London and Paris. Stocks were depressed in Tokyo, however, amid fears that trade tensions between Japan and the United States could intensify.
The dollar rallied sharply Tuesday on hints of a decline in German interest rates and a selloff of marks that traders stockpiled prior to France’s elections.
Comments by Hans-Juergen Koebnick, a German central banker, who said short-term interest rates may be cut again if Germany’s inflation rate slows to 2% this year, provided an early boost for the dollar.
In New York trading, the greenback finished at 1.382 marks, up from 1.369 on Monday. It was also changing hands in New York at 83.45 Japanese yen, up from 83.35.
While investors moved into stocks and bonds on expectations of lower interest rates, funds were liquidating precious metals. On New York’s Commodity Exchange, spot gold closed $6.20 lower at $383.60 an ounce. Spot silver collapsed 54.6 cents to $5.448 an ounce.
Among Tuesday’s highlights:
* The tumble in gold prices pressured gold-mining shares, with Newmont Mining off 2 at 39 1/2, Newmont Gold down 2 1/8 to 38 5/8 and Homestake Mining off 7/8 to 15 7/8.
* W.R. Grace continued its ascent, rising 3/4 to 62 after the firm’s chief executive met with shareholders Monday and said he is giving serious consideration to a takeover bid for the company’s health care unit.
* Brokerage stocks climbed on the prospects of better profits for Wall Street firms. Morgan Stanley rose 1 3/8 to 76 1/8, PaineWebber was up 1/2 to 19 1/2, Alex. Brown advanced 1/8 to 42 7/8, Legg Mason rose 5/8 to 25 1/8 and Lehman gained 1/4 to 20 3/4.
* Unilever tumbled 7 7/8 to 126 1/2 after the company reported disappointing first-quarter results.
* Kimberly-Clark rose 1 3/4 to 59 after announcing restructuring plans and the spinoff of a unit that makes cigarette paper and other tobacco-related products.
Market Roundup, D6
