FINANCIAL MARKETS : Japan Rumors Help Boost Bond Yields : Markets: 30-year Treasury rate soars to 6.72% from 6.61%. Stocks suffer sharpest loss in two weeks, with Dow slumping 34.58.
Bond yields rocketed Friday as more investors gave up hope for a Federal Reserve Board interest rate cut, and as rumors swept the market that Japanese investors may dump U.S. bond holdings.
The rebound in yields undercut the stock market, sending the Dow Jones industrials down 34.58 points to 4,423.99.
Bond investors, who have been pushing yields higher since Tuesday on fading belief that the Fed would ease credit to help the economy, unloaded securities in a flurry of activity Friday.
Analysts said the selloff was driven partly by unsubstantiated rumors that Japan’s Ministry of Finance has counseled Japanese institutional investors to get out of U.S. Treasury issues.
Though Japanese officials denied any such government effort, traders said the nervous market seized upon the rumors.
By the close of trading, the 30-year Treasury bond had plunged $16.25 per $1,000 in face value, its biggest one-day loss since Sept. 9. The bond’s yield, which moves inversely to its price, surged from 6.61% on Thursday to 6.72% on Friday, the highest since May 26.
Yields also leaped on shorter-term securities. The two-year T-note yield jumped to 6.02% from 5.87% on Thursday and 5.53% on Monday, rising above the 6% level for the first time since May 23.
Many analysts said that while the Japanese could in theory decide to sell their substantial U.S. bond holdings to punish the United States for its tough stance on trade issues, such a liquidation could severely hurt Japan as well by further weakening the dollar.
Despite the rumors, the dollar held its value Friday after an early dip. It closed at 84.47 yen in New York, from 84.54 on Thursday.
Bond traders said the rise in yields in recent days largely stemmed from Fed officials’ comments this week that the economy isn’t in danger of recession--which seemed to preclude any official Fed cut in short-term rates.
Because bond yields had fallen sharply in recent weeks in anticipation of such a cut, “the market was waiting for a reason to sell off,” said Andrew Brenner, a trader at Nomura Securities International.
In the stock market, meanwhile, bonds’ weakness pushed the Dow down more than 50 points by midday before it recovered somewhat. Losers beat winners by nearly 3 to 1 on the Big Board, but trading was moderate.
In contrast, Tokyo’s Nikkei-225 stock index suffered a much bigger hit overnight, losing 398.12 points to a 1995 low of 15,044.18 on fresh concerns about Japan’s economy.
Among U.S. market highlights:
* Interest-rate-sensitive stocks suffered heavy profit taking for a second day as rates rose. Among banks, NationsBank dropped 1 to 53 3/4, First Bank System lost 1 1/4 to 41, Chase Manhattan fell 3/4 to 45 1/4 and Wells Fargo lost 1 1/2 to 176 3/8.
Among brokerages, Merrill Lynch slid 2 1/8 to 46 3/4 and Salomon dropped 1 1/4 to 40.
* Utility stocks were also hit, with the Dow utility average shedding 3.30 points, or 1.6%, to 201.62.
* Downbeat earnings forecasts from a number of companies raised concerns about second-quarter profits. Firms warning about weaker earnings included Rubbermaid, which sank 3 3/4 to 26 7/8; casino operator MGM Grand, off 7/8 to 26 3/4, and cable TV equipment maker Antec, down 8 to 15 1/2.
* On the plus side, airline stocks zoomed on hopes for better-than-expected earnings. Continental A shares surged 1 1/2 to 20 1/4, American Airlines’ parent AMR rose 1 3/4 to 71 1/8 and Delta gained 1 to 69.
* Software stocks were also strong. Adobe Systems rose 1 1/4 to 57 3/4, Oracle added 1 1/8 to 36 3/4 and BMC Software jumped 1 5/8 to 71 3/8.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Producer Price Index
For finished goods, seasonally adjusted figures. 1982=100
(see newspaper for chart)
1995: 127.9
Source: Labor Department
Market Roundup, D3
* LOW INFLATION
Tumbling food, energy and raw material costs left wholesale prices unchanged in May. D2
