FINANCIAL MARKETS : Bonds Rally on Hope of Cooling Economy
Treasury bond prices surged higher as yields plunged to 15-month lows Tuesday, in a rally brought on by optimism that statistics this week will show further evidence of economic weakness.
Driving the bond market was heightened speculation among investors that the Federal Reserve Board may soon lower interest rates to keep the economy from possibly slipping into a recession. That would help the value of bonds, because lower interest rates on new securities lift the value of already-sold bonds.
At the close, the yield of the bellwether 30-year bond fell to 6.66%, the lowest since it closed at 6.65% on Feb. 28, 1994. It closed at 6.75% on Friday.
Its price, which moves in the opposite direction, soared 1 5/16 points, or $13.13 per $1,000 in face value.
Tuesday’s rally was the latest buying spree to hit the fixed-income market, which has attracted renewed investor interest this month following reports in April suggesting a slowdown in the economy.
Bonds rallied early in the session on the strength of a Conference Board report showing that consumer confidence declined last month for the first time in three months. That suggests that consumer spending might also decline, helping to slow the economy’s growth.
The business research group’s monthly index of consumer confidence, which is widely followed by the financial markets for insights into the economy’s health, dropped to 101.6 from a revised reading of 104.6 in April.
Meanwhile, blue-chip stocks closed higher Tuesday as bargain hunters pulled the market out of a two-session losing streak.
The Dow Jones industrial average closed up 9.68 points at 4,378.68.
It lost 43 points Friday after dropping 26 points Thursday. The market was closed Monday for Memorial Day.
Worries that sluggish economic activity will curb demand for computers and similar products triggered selling that took a heavy toll on the Nasdaq, where numerous computer, semiconductor and general technology issues are listed. The Nasdaq composite index tumbled 13.17 points to 858.70.
The New York Stock Exchange’s composite index ended up 0.29 point at 281.87, and Standard & Poor’s 500-stock index slipped 0.07 point to 523.58.
In the broader market, gainers outnumbered losers 1,226 to 1,034 on the NYSE. Big Board volume came to 280.99 million shares, up from 291.22 million on Friday.
Stocks started the day positively before succumbing to the selling. The market wrestled with concerns that the economy might be slowing to a point at which corporate profit growth could be seriously impaired.
Among Tuesday’s highlights:
* Technology stocks posting steep losses included LSI Logic, off 5 7/8 at 67; Texas Instruments, down 5 1/2 to 115 5/8, and Xerox, off 4 to 110 1/2.
IBM lost 2 1/2 to 92 5/8, Intel tumbled 5 3/8 to 110 1/2, Novell lost 1 1/2 to 18 3/4, and Microsoft fell 4 1/2 to 83.
* Philip Morris rose 7/8 to 70 3/4. Oppenheimer reiterated a “buy” rating and said the company’s cigarette recall affects only a small number of tobacco products, a source said.
* Beverly Enterprises fell 1 3/4 to 11 1/4. The company said the spinoff and initial public offering of its Pharmacy Corp. of America unit will be delayed three to six months.
* Morrison-Knudsen tumbled 1 1/4 to 5 3/8 after Barron’s newspaper reported that the company could file for bankruptcy protection as early as next week, traders said.
* Carnival fell 3/4 to 23. Goldman Sachs downgraded the stock and trimmed its 1995 and ’96 earnings estimates for the company, a market source said.
Overseas, Tokyo’s 225-share Nikkei average gained 188.94 points to close at 15,762.97. In Frankfurt, the 30-share DAX average rose 20.24 points to 2,087.65, while London’s FTSE-100 index closed down 1.2 points at 3,309.9.
Mexico’s Bolsa index closed down 30.97 points, or 1.57%, at 1,938.72, its lowest level since it hit 1,919.42 on April 21.
Elsewhere, the dollar rose slightly against most major currencies in thin trading amid optimism that the economy is not slowing as fast as money traders had expected.
The greenback closed in New York at 82.79 Japanese yen, up from 82.65 on Friday, and at 1.388 German marks, up from 1.378.
