FINANCIAL MARKETS : Bond Yields Rise Again on Fed Speculation; Dow Slips
Bond yields advanced for a third straight day Thursday amid speculation that the Federal Reserve Board will keep interest rates steady for now.
The rise had little effect on stocks, however, as the market closed mixed.
On Wednesday, Fed Chairman Alan Greenspan raised the possibility of a brief recession but said a prolonged downturn is unlikely, which bond traders interpreted as an indication that the Fed will stay pat on rates.
The yield on the benchmark 30-year Treasury bond rose to 6.61% Thursday from 6.56% on Wednesday. Its price, which moves in the opposite direction, matched its decline from Wednesday, dropping 23/32 point, or $7.19 per $1,000 in face value.
The dampened optimism for a rate decrease--the Fed’s prime weapon for stimulating economic growth--triggered wide selling of bonds that had been bought in recent weeks.
Also spurring some selling Thursday was nervousness that today’s release of May figures on inflation at the wholesale level would show an unexpectedly large increase.
Many economists expect a modest increase of 0.3%. A larger-than-expected jump in wholesale prices, it was feared, could create big losses for investors who have stocked up on bonds in recent weeks, analysts said.
Shorter-term bond yields rose with long-term yields on Thursday. The 2-year T-note yield rose to 5.87% from 5.79% on Wednesday and 5.60% on Tuesday.
But stock investors were largely unfazed by the rate rise. Many kept to the sidelines ahead of today’s release of inflation data.
The Dow Jones industrial average slipped just 3.46 points to 4,458.57, its second drop in four trading sessions.
In the broader market, declining issues narrowly edged out advancers on the Big Board, where volume was light.
Interestingly, smaller stocks emerged as market leaders as blue chips stalled. The Nasdaq composite index rose 4.55 points to 886.13, breaking through its record high set Monday.
And the Russell 2,000 index of smaller stocks advanced 0.92 point to a record 275.73.
Among Thursday’s highlights:
* The Dow was led lower by Philip Morris, which fell 1 1/2 to 71 1/2 after the New York Times reported that the company has engaged in long-term studies of the effect of nicotine on the body, despite the company’s claim that nicotine should not be regulated under the same standards as drugs.
* Philip Morris was followed by DuPont, down 1/2 to 67 3/8, and Eastman Kodak, down 3/4 to 59 1/8.
* Caterpillar, another Dow component, rose 1 1/4 to 62. The construction machinery maker raised its dividend Wednesday and announced a massive stock buyback.
* Bank stocks continued to pull back as interest rates rose. Wells Fargo sank 5 to 177 7/8 and Citicorp dropped 1 1/8 to 52 5/8.
* Aetna Life rose 1 7/8 to 61 3/4. The company is considering selling as much as 20% of its property-casualty business in preparation for spinning off the entire unit, according to a published report.
* Brokerage Lehman Bros. said it downgraded trucking firms Consolidated Freightways and TNT Freightways to “outperform” from “buy.” Consolidated Freightways fell 1 1/8 to 21 1/4 and TNT eased 1/8 to 18 5/8.
* Semiconductor stocks extended recent gains. Intel rose 11/16 to 113 13/16 and Texas Instruments gained 1 1/8 to 120.
Overseas, Tokyo’s Nikkei 225-share average lost 237.32 points to end at 15,442.30. In Frankfurt, the 30-share DAX average fell 10.10 points to 2,130.97, while London’s FTSE-100 average climbed 10 points to 3,380.8.
Mexico’s Bolsa index declined 10.07 points to 1,979.73.
