FINANCIAL MARKETS : Treasury’s Plan Rallies Bonds; Stocks Mixed

From Times Staff and Wire Reports

Bond yields fell Monday as fear of a default by the U.S. Treasury dissipated.

But the stock market could muster only a mixed close, with the Dow industrial average inching up to a record high while most stocks ended modestly lower.

As expected, Treasury Secretary Robert E. Rubin indicated that he would stave off a potential government default by tapping the huge civil-service trust funds for borrowing authority, if necessary.

Rubin then detailed a series of bill, note and bond auctions in coming days aimed at restoring the government’s cash flow and paying off maturing debt.


Bond yields had initially jumped Monday morning on news that President Clinton followed through on a promise to veto the Republican Congress’ bill raising the federal debt ceiling, now $4.9 trillion.

Clinton nixed the measure because Republicans attached riders that the President opposes. But because the Treasury has nearly reached the official debt ceiling, Clinton’s veto forced Rubin to turn to creative financing to assure the government would not default.

As Rubin announced the Treasury’s auction calendar--$137 billion in new securities over the next nine days to meet $102-billion in interest and principal payments--the bond market rallied because it became clear that Rubin planned to circumvent the debt ceiling by tapping government trust funds to avoid default.

The yield on the 30-year Treasury bond, 6.33% at Friday’s close, rose as high as 6.36% in early trading but quickly sank and ended the day at 6.27%.

Shorter-term yields ended mostly unchanged, however.

“Once (investors) got the thought that there was no immediate threat of a default, that brought the bid back to the market,” said Jim Kenney, bond trader at Prudential Securities.

The dollar also rallied, rising to 101.90 Japanese yen in New York from 100.93 Friday.

Today the Treasury will sell $31.5 billion in nine-day bills and $26 billion in 36-day bills. On Wednesday it will sell $18.75 billion in 52-week bills. Three-year and 10-year notes will be auctioned next week.

On Wall Street a late rally gave way to profit taking near the close, despite bonds’ strength. The Dow index added 2.53 points to 4,872.90, another record high, but most other major indexes fell. Losers outnumbered winners by 12 to 10 on the NYSE, where trading was typically dull for a Monday.

Among the day’s highlights:

* Some energy stocks gained following an explosion in a military building in Saudi Arabia and talk of a possible oil embargo against Nigeria in response to its execution last week of democracy activists. Exxon added 7/8 to 76 3/8, Mobil rose 2 to 106 1/8, Chevron gained 1/2 to 48 1/8 and Unocal added 3/8 to 26 1/8.

* Technology stocks slumped, continuing their recent volatile trend. Cisco Systems lost 2 1/2 to 85 3/8, Motorola fell 1 3/4 to 66, Adobe Systems dropped 4 to 62 3/4 and Intel was off 1 1/8 to 67 1/8.

* Some consumer issues helped push the Dow index higher. Coca-Cola rose 1 1/8 to 73 7/8 and Procter & Gamble gained 1 3/8 to 84 3/8.

* Koor Industries, Israel’s largest industrial firm, began trading on the NYSE at 17 1/4 and closed at 17.

In foreign trading, Mexican and Brazilian markets tumbled on fresh concerns about currency stability and interest rates. Mexico’s Bolsa stock index sank 2.4% while Brazil’s Bovespa index dropped 4.3%.