FINANCIAL MARKETS : Bond Yields At Lowest Since 1993; Stocks Mixed
Long-term bond yields slid to their lowest levels in 26 months on Wednesday as investors responded to fresh signs of economic weakness.
On Wall Street, meanwhile, stocks closed mixed as an early blue-chip rally faded. Trading action overall remained subdued.
In Tokyo stocks finished at 14-month highs, with the Nikkei-225 index topping 20,000 as the year-end Japanese rally continued.
The U.S. bond market saw fresh buying after the National Assn. of Realtors said that sales of previously owned homes dropped 1.7% last month, the second straight decline. In addition, the Conference Board said that its widely followed monthly index of consumer confidence fell to 98.7 in December from 101.6 in November.
The reports offered the latest evidence that the U.S. economy’s prospects are iffy as 1995 ends, potentially setting the stage for more interest-rate cuts by the Federal Reserve Board early in 1996, analysts said.
Optimism about a balanced-budget deal between Congress and President Clinton also helped sentiment, traders said.
The yield on the Treasury’s 30-year bond fell from 6.03% to 6%. That surpassed the previous 1995 low of 6.02% set on Dec. 4 and was the lowest yield since October, 1993. Shorter-term yields also eased modestly Wednesday.
The Fed cut its benchmark short-term rate, the federal funds rate, from 5.75% to 5.5% on Dec. 19, and most economists believe that deeper cuts are ahead.
“We believe that the Fed will satisfy credit market expectations for several rounds of easing,” said Bruce Steinberg, an economist at Merrill Lynch & Co.
But what was good for bonds on Wednesday was only so-so for stocks. The Dow industrial average ended down 4.34 points at 5,105.92 after rising early in the day.
Broader indexes were mixed. The Nasdaq composite index slipped 1.24 points to 1,048.13, but the Russell 2,000 index of smaller stocks added 1.24 points to 314.07, nearing its record high of 316.12.
Winners still topped losers by 13 to 10 on the Big Board and by a thin margin on Nasdaq.
“It looks like the institutional types did whatever they had to do before the Christmas break. It’s almost a nothing day,” said William LeFevre, market strategist at Ehrenkrantz King Nussbaum.
Some analysts are fearful of a stock sell-off in January, especially if Congress and Clinton agree on a capital gains tax cut. But the bulls argue that the market’s underlying fundamentals of low inflation, low interest rates and moderate economic growth remain sound.
Among Wednesday’s highlights:
* Financial stocks got a boost as interest rates fell and as Federal National Mortgage Assn. announced a huge stock buyback, reinforcing many investors’ positive perception of the financial services industry.
Fannie Mae soared 5 1/4 to 125, Federal Home Loan Mortgage jumped 1 3/4 to 83 3/8 and Student Loan Marketing gained 1/2 to 65 3/4.
Among banks, Bankers Trust jumped 1 1/4 to 67 1/2, PNC Bank surged 1 3/8 to 31 1/2 and Wachovia added 1/2 to 46 1/8.
Other financial shares advancing included brokerage Jefferies Group, up 1 13/16 to 47 13/16; Travelers, up 2 3/8 to 62 3/4; and SunAmerica, up 1 1/4 to 48 1/8.
* Real estate investment trusts, also beneficiaries of lower interest rates, were strong. Cali Realty gained 1/2 to 21 1/2, Vornado Realty jumped 3/4 to 37 7/8, Weingarten Realty added 1/4 to 37 1/2 and Storage USA was up 1/2 to 32 3/4.
* Regional Bell telephone stocks continued to rise on federal deregulation hopes. Ameritech gained 7/8 to 58 5/8, BellSouth jumped 1 1/8 to 43 5/8 and Pacific Telesis was up 1/4 to 33 5/8.
* Some biotech stocks added to recent gains as investors hunt for potential hot growth stories of 1996. Biogen rose 1 1/2 to 62, Immulogic Pharmaceutical surged 2 1/2 to 18 7/8, and Oravax gained 2 to 12 1/2.
* Among the day’s losers, some industrial issues weakened on fears about weak earnings as the economy’s pace remains sluggish. Alcoa fell 1 3/4 to 49 3/4, Paccar dropped 1 to 44 1/4 and Illinois Tool Works gave up 1 3/8 to 57 1/4.
Analyst Victor Lazarovici at brokerage Smith Barney lowered earnings estimates on a number of metals companies, citing weaker year-end shipments.
* Among Southland issues, Tekelec added 1/2 to 15 3/4. But after the market closed the telecommunications equipment firm said it expects to report only a break-even fourth quarter because of weaker sales.
In foreign trading, futures-linked buying by foreign brokerages pushed Tokyo’s Nikkei-225 index up 107.04 points to 20,011.76, its highest close since Oct. 13, 1994, and its sixth straight advance.
Optimism about Japan’s economy is boosting stocks, but at the same time is triggering selling in the Japanese bond market. Japanese yields rose to their highest level in more than three months, with the benchmark 10-year government bond adding 0.11 point to 2.93%.
In U.S. commodities trading, natural gas prices surged again Wednesday ahead of an industry report showing gas held in storage fell further below year-ago levels. February natural gas futures soared 40 cents to $2.87 per million British thermal units.
