Stocks Rebound, Yields Tumble on Strong Auction of Treasury Debt
A plunging stock market switched gears late in the trading day Wednesday, snapping higher after a surprisingly strong auction of new Treasury debt sent long-term interest rates tumbling below 7%.
For the first time, the New York Stock Exchange activated its limits on program trading for both a 50-point rise and decline in the Dow Jones industrial average in the same trading session.
“This market has gotten increasingly volatile. This has become the norm rather than the exception,” said Thom Brown, a managing director of Rutherford Brown & Catherwood.
The Dow had lost 155 points in the previous four sessions as investors shifted some holdings into Treasury bonds to take advantage of higher yields.
Shrugging off a potentially pivotal slide below 5,400, the Dow jumped 53.11 points to close at 5,474.06. The barometer of 30 big U.S. companies was off as much as 78 points in the morning, temporarily bringing the index’s fall from record heights to 6.1% in about a month.
Broader measures sprinted higher with the Dow, but the more speculative elements of the market rebounded less decisively.
The stock market rose after an auction of new 10-year Treasury notes drew surprisingly strong bidding. By contrast, the response to Tuesday’s auction of 3-year notes was much weaker as investors grew skeptical about demand for this week’s flood of $46 billion in new U.S. borrowing--a record for the Treasury’s quarterly refunding.
But the high yield on the 10-year note enticed potential buyers, including foreign investors, said Russ Labrasca, senior vice president at Sutro & Co. of San Francisco.
“A yield of 6.9% on a 10-year piece of paper was viewed as a good entry point back into the bond market,” said Russ Labrasca, senior vice president at Sutro & Co. of San Francisco.
After the auction, the yield on the 30-Year Treasury bond--a benchmark used to set the rates charged on many types of loans--fell below 7%, cheering stock investors.
“Investors are clearly worried about inflation, but most don’t understand what they’re looking at. There is no inflation in this economy,” said Philip J. Orlando, chief investment officer at Value Line Asset Management, which manages about $5.5 billion.
“Look at last week’s jobs number, which was fabulous because it was so weak. And this week’s producer price index number will show core inflation up just 0.1 or 0.2%. The economy is growing at a more tepid pace than generally believed,” Orlando said.
The Dow and broader blue-chip indexes have been struggling in recent weeks amid inflation worries and the persistent rise of interest rates, which threatens corporate profit growth and makes bonds an increasingly attractive investment.
Wednesday, after trailing declining issues by more than 3 to 1 on the New York Stock Exchange, the number of NYSE advancers managed a slim lead for the session. NYSE volume was heavy at 493.22 million shares, up from Tuesday.
The Standard & Poor’s 500-stock index rose 6.52 to 644.78, rebounding from a loss of more than 8 points. The Nasdaq composite index, down almost 20 at one point, rose 0.76 to 1,183.43.
Among market highlights:
* Comparator Systems was the most active stock in U.S. composite trading for a fourth straight day. Some 81 million shares changed hands. The stock fell 5/16 to 9/16.
* Next most active were the shares of Associates First Capital, which rose 5 3/4 to 34 3/4 as 25.4 million shares traded hands. The Ford Motor Co. unit went public today and became the biggest publicly owned U.S. consumer finance company.
* The bond rally aided a recovery in financial stocks. Banks in particular benefit from declining yields because they let them pay less to depositors. NationsBank rose 1 7/8 to 79 1/8, Banc One rose 7/8 to 34 1/8, and Wells Fargo jumped 3 1/2 to 237 3/4. Citicorp rose 2 to 77 1/2, Merrill Lynch added 1 1/4 to 59 7/8 and J.P. Morgan rose 1 7/8 to 84 5/8.
* Imnicare fell 4 1/2 to 50 after the company said government investigators obtained documents and records from its Home Pharmacy Services unit.
* America Online slumped 7 1/4 to 62 3/4 after it unveiled a new price scheme for heavy users that unnerved investors.
* U.S. Robotics surged 10 1/2 to 177 1/4 after reaching a pact to provide equipment for use in some AT&T; Corp. services.
* C-Cube Microsystems climbed 7 1/4 to 52 1/4. Divicom, a maker of television set-top boxes, will use C-Cube’s MPEG-2 encoder chips technology in Echostar’s new digital direct broadcast satellite system.
Overseas, Tokyo’s Nikkei stock average rose 1.1%, Frankfurt’s DAX index fell 0.3% and London’s FT-SE 100 fell 0.4%.
