30-Year Bond Surpasses 7%; Stocks Decline
Bond yields continued to inch higher Monday, sparking renewed--but mild--selling in the stock market.
The Dow Jones industrials, off 50 points Friday, dipped 18.47 points to 5,624.71 in slow trading.
Meanwhile, grain prices dove again, as better Midwest weather allowed many farmers to get corn, soybeans and other crops planted after long delays.
In the bond market, the bellwether 30-year Treasury bond yield closed at 7.01%, up from 6.99% on Friday and the first close above the 7% mark since May 9.
Shorter-term yields also edged up, with the one-year T-bill yield reaching 5.78%, up from 5.75% on Friday and up from 5.53% as recently as May 22.
The recent rise in yields has been tied to growing evidence that the U.S. economy is maintaining its first-quarter strength and perhaps even getting stronger. That is boosting expectations for a tightening of credit by the Federal Reserve Board sometime before the end of the year.
On Monday, the Conference Board’s index of leading economic indicators for April pointed to an expanding economy. And even though the National Assn. of Purchasing Management said its manufacturing activity index slipped in May, another component of that report showed that more manufacturers paid higher prices for supplies in May--signaling possible trouble on the inflation front down the road.
“There is fear that the Fed might raise rates in July,” to stem concerns about too-rapid economic growth, said Marty Kearney, a trader at PTI Securities.
The bond market ignored some disinflationary news Monday: Grain prices tumbled, continuing to reverse the sharp run-up of early spring, as the improved Midwest weather helped farmers.
Corn futures at the Chicago Board of Trade closed down the allowable daily limit, with the July contract off 12 cents to $4.65 a bushel, as sunny weather in the Midwest over the weekend sparked optimism that the badly needed crop could overcome this spring’s planting delays.
After the market close, the U.S. Department of Agriculture reported that 86% of the corn crop had been planted, compared with an average 91% in the previous five years. More than half the crop was rated in good to excellent condition. About 45% of soybeans have been planted.
On Wall Street, the stock market clearly took its cue from the bond market, but selling was muted, suggesting no rush to exit. Losers outnumbered winners 13 to 10 on the New York Stock Exchange, but volume was a mere 317 million shares, the slowest since Jan. 15.
The Nasdaq composite index of mostly smaller stocks lost just 4.70 points to 1,238.73.
“I suspect we’ll have to see stabilization in the bond market” before enthusiastic buying of stocks resumes, said Ed Nicoski, a Piper Jaffray technical analyst.
Among Monday’s highlights:
* Profit takers continued to hit some recent high-fliers among smaller stocks, including Iomega, off 2 57/64 to 41 15/64; Presstek, off 12 1/2 to 150; Diana, down 12 3/8 to 84; and MRV Communications, off 4 5/8 to 62 5/8.
But Syquest rebounded 3 3/4 to 14 3/4. The company said it has begun shipping a family of low-cost, high-performance, removable-cartridge hard disk drives priced at $299.
* Some utility and financial stocks were weak as bond yields rose. Southern lost 3/8 to 22 3/4, Texas Utilities eased 3/8 to 40 1/2, Wells Fargo lost 1 1/8 to 239 7/8 and Merrill Lynch fell 3/4 to 64.
* On the upside, GM gained 1 to 56 1/8 and Chrysler rose 1 1/8 to 67 3/4 on optimism about car sales. Ford, however, eased 1/8 to 36 3/8.
Other industrial winners included DuPont, up 1 5/8 to 81 3/8, and Reliance Steel, up 5/8 to 38 1/8.
* Univar shot up 6 7/8 to 19 1/4 after the company received a $19.45-a-share takeover offer from minority shareholder Dutch transport and tank storage group Pakhoed. Univar’s board has endorsed the offer.
* Among Southland issues, the NYSE kept shares of restaurant chain Sizzler from trading Monday as news of its surprise bankruptcy was disseminated. Trading is expected to resume today. The stock closed at 3 7/8 on Friday.
Market Roundup, D8