Dow Off 28 as T-Bond Yield Jumps to 7%
Bond traders pushed long-term yields to the critical 7% level on Monday, fearful that an apparently still-strong economy will lead the Federal Reserve Board to boost interest rates soon.
But bonds’ turmoil sparked only a mild selloff in the stock market, where the Dow Jones industrials eased 28.85 points to 5,693.89, and broader indexes lost even less in percentage terms.
Another flurry of corporate takeover deals helped support stocks, even as bond yields rose. Bloomberg Business News counted 25 big deals announced Monday, worth at least $19 billion in value. (Investor Spotlight, D10.)
“The merger and acquisition market is hot as a pistol at this time,” said John Michaelson, managing director of Needham & Co.
Still, the overall tone of financial markets was sleepy Monday. Trading on Wall Street was the second slowest of the year, with many investors on vacation during this final week of August. New York Stock Exchange volume totaled just 281 million shares.
In the bond market, yields rose for a fourth straight session as traders reacted to the minutes of the Fed’s July policy-making meeting, which were released late Friday.
The July 3 minutes showed Federal Open Market Committee members tilted toward higher rates if the economy strengthened too much. That was not surprising in itself, but the new information prompted some investors to sell bonds Monday because recent reports have suggested that the economy’s pace isn’t slowing as the Fed had hoped.
A report Monday on existing home sales in July, for example, was stronger than expected.
“The possibility of a September Fed move [to boost short-term interest rates] has been brought back into play,” said Donald E. Maude, fixed-income strategist at Scotia Capital Markets (USA).
The yield on the bellwether 30-year Treasury bond jumped to 7% Monday, up from 6.94% on Friday and the highest yield since July 30.
Shorter-term yields also rose in advance of the Treasury’s auction of two-year notes today and five-year notes on Wednesday.
Many analysts question how long the stock market can stay relatively unconcerned about higher bond yields. Stocks have recovered sharply from July’s selloff, which was prompted in part by worries that the Fed would tighten credit this month. Those worries were put aside in early August as economic data appeared to point to slower growth, but recent data has suggested renewed strength in the economy.
Among Monday’s highlights:
* In the biggest takeover deal of the day, long-distance services provider WorldCom agreed to buy MFS Communications. The news sent MFS shares up 9 15/16 to 44 13/16, while WorldCom dove 3 5/8 to 22 3/4.
Other telecom stocks closed mostly lower. AT&T; fell 1 to 53 5/8 and BellAtlantic lost 1 1/4 to 57 1/4.
* Insurer Conseco’s offers for four separate financial companies were better received by Conseco shareowners: Its stock jumped 1 11/16 to a record 44 on the NYSE.
* Among other deals, materials-handling equipment firm Spreckels Industries’ shares surged 4 1/8 to 23 1/2 after Columbus McKinnon agreed to buy it for 24 a share. Columbus was off 3/4 to 14.
Also, Chancellor Broadcasting rose 1/4 to 37 1/2 after agreeing to buy 12 radio stations from Colfax Communications for $365 million in cash and working capital.
* Tobacco stocks rose, responding to Friday’s court victory for the industry in an Indiana smoking-liability case. Philip Morris gained 2 3/8 to 90 3/8, RJR Nabisco rose 1 1/8 to 26 5/8 and Loews was up 1 1/4 to 76.
In foreign trading, Tokyo’s Nikkei-225 stock index suffered another slam, falling 1.6% to 20,884 on weak supermarket and department store sales reports.
Market Roundup, D8
