Yields Continue Rise, to 7.11%

Interest rates on long-term Treasury bonds surged again Friday on investors’ concerns that a new employment report contains signals of higher inflation ahead. The higher bond yields pushed blue-chip stocks lower, although technology and speculative stocks rallied.

The yield on the benchmark 30-year Treasury bond rose to 7.11% from 7.05% late Thursday, when it closed above 7% for the first time in nearly a year. The recent increases have pushed up mortgage rates and sparked new fears of a slowdown in the housing sector.

The Dow Jones industrial average fell 20.24 points to close at 5,478.03, after clinging to a modest gain most of the session. For the week, the gauge of blue-chip performance was down 89.96 points.

Bond yields initially fell Friday morning after the government reported that the economy added just 2,000 nonfarm jobs in April, slowing greatly from the increases of 178,000 in March and a 12-year high of 631,000 in February.

The news calmed fears that economic strength might aggravate inflation pressures and thus erode the value of bonds and other fixed-rate securities.

But many market players began selling bonds, apparently deciding that the report paints a mixed picture of U.S. growth. For one, the report shows a dip in the nation’s unemployment rate to a 14-month low of 5.4% last month.

Bond traders were also distressed by an increase in workers’ average hourly wages in April, said economist Dan Seto of Nikko Securities International Co.

“What it comes down to is: What do you believe?” Seto said. “Even though the jobs gain wasn’t very large, the low unemployment rate and somewhat higher wage gain exacerbated the inflation concerns that were already brewing in the market.”

Still, the bond-market reaction was more muted than the one on Thursday, when investors dumped bonds after learning of faster-than-expected economic growth in the first quarter. That news was the latest to indicate stronger growth in the economy, and it intensified concerns that the Federal Reserve Board could start raising interest rates to try to check inflation before it becomes a problem.

In the stock market, the picture was mixed. The Nasdaq market--one of Thursday’s biggest losers as investors locked in profits on the recent rally in technology and smaller-company shares--rose 6.27 points to 1,184.60. But that was down sharply from a gain of more than 15 points earlier.

Other market indicators dominated by more speculative issues also managed a gain on the day.

The Russell 2,000 list of smaller companies, which had risen with the Nasdaq to 10 straight record closes before Thursday’s sell-off, rose 0.91 point to 346.85. The American Stock Exchange’s market value index rose 0.72 point to 589.69.

But blue-chip indicators followed the Dow lower. The New York Stock Exchange composite index fell 0.81 point to 345.40, and the Standard & Poor’s 500-stock index fell 1.75 points to 641.63.

Declining issues led advancers by a slim margin on the NYSE, where volume totaled 427.81 million shares, down from Thursday.

Speculative issues have been outperforming the blue-chip market for weeks on expectations that those businesses will benefit most from an improving economy.

Among the market highlights:

* Technology shares rallied broadly. Intel rose 11/16 to 68 11/16, Cisco Systems gained 1/2 to 50 5/8, Sun Microsystems rose 3/8 to 57 3/8, Motorola gained 2 to 62 5/8, Compaq Computer rose 1 1/8 to 47 3/4, Digital Equipment added 3/4 to 57 and IBM advanced 1/4 to 108 1/8.

Zenith Electronics gained 2 3/4 at 15 3/4. It more than doubled this week after the company announced plans to enter the online business with two new modem systems that will enable cable operators to offer their subscribers access to the Internet.

* Viacom Class B was unchanged at 41 3/8 after the company reported that its first-quarter earnings fell 61%.

In Mexico City, the Bolsa index fell 16.51 points, or 0.52%, to 3146.00. Frankfurt’s 30-share DAX index closed down 44.82 points at 2,457.49. The Tokyo Stock Exchange was closed in observance of a Japanese holiday.

In late New York trading, the dollar stood at 105.05 yen, up from 104.35 yen Thursday, and at 1.5245 German marks, down from 1.5283.

Market Roundup, D4

* CONFUSING REPORT

U.S. created few new jobs, but jobless rate falls. A1

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Yields’ Split Decision

Longer-term bond yields have climbed more than 1 percentage point since Feb. 1, as investors have reacted to stronger-than-expected economic growth. But short-term yields still don’t appear to be signaling a dramatic credit tightening by the Federal Reserve Board. Yields on Treasury securities of three maturities:

Friday

6-month T-bill: 5.34%

2-year T-note: 6.20%

30-year T-bond: 7.11%

Source: Reuters