FINANCIAL MARKETS : Bond Yields Fall Again; Dow Up 20.78
Bond yields fell for a second day to a five-week low on Friday, as stocks climbed and the dollar declined.
Bond traders reversed bets amid speculation that one investor had bought as much as $500 million of notes and bonds. Two economic reports revived hopes for another rate cut by the Federal Reserve Board, also helping to boost stock and bond prices.
The yield on the benchmark 30-year Treasury bond fell to 6.70% from 6.81% on Thursday. The two-year note’s yield also dropped 0.11 percentage points, to 5.87%.
The decline in yields was the biggest since mid-July. The large purchase, combined with expectations for slower economic growth, set off a rush of buying once bond prices pierced the trading range that had persisted for the past five weeks.
“It’s feeding on itself and there’s no willingness to sell,” said David Duerson, a trader at BA Securities. “The psychology has turned positive. It’s a pretty frothy situation.”
Bonds initially gained amid “speculation of a very large buyer” of 10-year notes and bonds, said Matthew Alexy, chief fixed-income strategist at CS First Boston.
The sudden arrival of the large buyer forced those who bet on falling prices to start buying back securities, Alexy said. Bond yields move in the opposite direction of prices.
Economic news also helped lift the markets. Low mortgage rates helped push up sales of existing single-family homes in July a surprising 5%, to the highest level in more than a year, the National Assn. of Realtors reported. The group said sales rose to a seasonally adjusted annual rate of 3.99 million. Home sales usually stimulate the overall economy because they lead to other purchases.
The Federal Reserve Bank of Philadelphia said a survey of 52 forecasters shows the outlook for inflation over the next five quarters is better than it was three months ago. The panel expects the consumer price index to rise 2.9% in the third quarter. That prediction is down from 3.5% in last quarter’s survey.
Stocks rose, led by banking and insurance companies. The Dow Jones industrial average rose 20.78 points to 4,601.40.
Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange. Big Board volume totaled a light 256.00 million shares as of 4 p.m., down from 299.18 million on Thursday.
The Nasdaq composite index weakened on a second day of losses in the technology sector. It fell 0.89 point to 1,020.04.
Among Friday’s highlights:
* Among bank stocks, Chase Manhattan was up 1 1/8 to 53 and NationsBank rose 1 1/8 to 61 1/2. J.P. Morgan, a component of the Dow industrials, gained 1 1/4 to 71 7/8. Financial services firms also benefited. Lender Household International rose 1 1/4 to 56 1/4.
* Among active stocks, Geico, the auto, property and life insurance company, zoomed 12 7/8 to 68 5/8 on the NYSE. Investment company Berkshire Hathaway said it will buy the 49% of Geico that it doesn’t now own for $70 a share, or about $2.3 billion. Berkshire gained $600 to $25,400.
Other insurance companies also gained. Cigna was up 1 3/8 to 93 1/2.
* Technology stocks, which weakened Thursday on profit taking after the release of Windows 95, were down slightly again. Microsoft fell 1 3/4 to 94 3/8. Computer maker Sun Microsystems lost 1 1/4 to 58 1/2. Chip maker Intel lost 21/32 to 60 3/8.
The dollar fell against the German mark after the surprise resignation of French Finance and Economy Minister Alain Madelin spurred a flight to the haven of the mark.
Currency traders said Madelin’s resignation signals dissension between fiscal conservatives and moderates within the government of President Jacques Chirac, who has been in office only since May. Countries experiencing political turmoil often see their currencies suffer.
The dollar slumped as low as 1.4682 marks, an eight-day low, in the wake of the announcement. It reached 1.4710 marks in late trading in New York, down from 1.4761 on Thursday.
The dollar also rose to 96.70 Japanese yen from 96.52 on Thursday. In commodities trading, coffee prices rose to a 10-week high as lingering dry weather in Brazil raised concern that trees could be damaged before next year’s crop begins to grow.
Coffee futures for December delivery rose 4 cents to settle at $1.5585 a pound on the Coffee, Sugar & Cocoa Exchange.
Overseas, Tokyo’s Nikkei-225 average ended 151.31 points lower at 17,770.68.
In Mexico, the Bolsa index closed up 15.87 points, at 2,462.61.
