FINANCIAL MARKETS : Bond Yields Soar but Most Stocks Gain
Bond yields resumed their weeklong rise Friday--hitting the highest levels since mid-May--on new hints that the Federal Reserve Board feels no pressure to cut interest rates further.
But in the stock market share prices were marginally higher as late buying related to monthly option and futures contract expirations erased early losses.
The Dow Jones industrial average finished unchanged at 4,641.55 after being down more than 30 points at 2:30 p.m. EDT. For the week, however, the Dow lost 67.27 points after tumultuous selloffs on Tuesday and Wednesday.
New York Stock Exchange volume totaled a heavy 432 million shares on Friday and was just above 2 billion shares for the week, nearly equaling the record 2.3 billion-share week of the October, 1987, market crash.
All in all, the bond market had a much rougher day--and week--than stocks. Just as Fed Chairman Alan Greenspan’s bullish comments about the economy helped send bond yields surging Wednesday, comments from another Fed official on Friday drove yields up sharply late in the day.
Fed Vice Chairman Alan Blinder told Bloomberg Business News that the probability of recession is falling, and that he is “open-minded” about the need for more cuts in short-term interest rates to stimulate the economy.
Blinder had been considered one of the major proponents of lower rates, so his comments indicated he is less convinced that more rate cuts are needed.
As a result investors dumped bonds again on Friday, sending the yield on the 30-year Treasury bond to 6.96%, up from 6.86% on Thursday. The latest yield is the highest since it was at 6.99% on May 13. A week ago the yield was 6.60%.
Traders say many bond market speculators who had rushed into bonds in May and June on the belief that the economy was sinking now are bailing out as the economic outlook improves.
But that could present a buying opportunity for investors who want to lock in higher yields on the assumption that inflation will remain low, some analysts note.
As for the stock market, the profit-taking that was triggered at mid-week by rising bond yields and some weaker-than-expected corporate earnings reports continued on Friday, but sellers found plenty of buyers--allowing most stock indexes to close slightly higher for the day.
On the NYSE, winners topped losers by 12 to 10.
Analysts warn, however, that another jump in bond yields could trigger more stock selling.
Among Friday’s highlights:
* Technology stocks were mixed. Apple Computer fell 3 5/16 to 43 3/4 on its disappointing earnings report, and Microsoft slumped 4 1/8 to 92 on fresh profit-taking. But Motorola gained 2 3/4 to 76, Autodesk surged 2 1/8 to 45 3/4 and Tekelec jumped 1 1/2 to 23.
* Many interest-rate-sensitive stocks dropped as bond yields rose. Citicorp fell 1 1/4 to 60 1/4, Federal National Mortgage lost 2 1/4 to 91 and Bankers Trust fell 1 1/2 to 61 3/4.
