Bond Yields Fall to Seven-Month Lows on Record Day

As the Dow Jones industrial average galloped past 8,000 points Wednesday for the first time, bonds rallied to send long-term interest rates to their lowest levels since December.

The dollar fell amid fear of a potentially troubling Japanese trade report.

The Dow ended up 63.17 points to close at 8,038.88, taking just over five months to rise from the 7,000 level reached Feb. 13.

Strong corporate earnings and tepid inflation news doused concern in the inflation-sensitive bond market that the U.S. central bank will raise interest rates again soon.

“We’ve had fabulous inflation data and the economy has slowed to a point that will keep the Fed on hold for a very long time,” said Steve Guterman, who manages $3.5 billion of bonds at Salomon Bros. Asset Management.

The yield on the benchmark 30-year U.S. Treasury bond fell to 6.47%, the lowest since Dec. 9, from Tuesday’s 6.54%.

The government reported Wednesday that consumer prices rose a scant 0.1% in June--less than analysts had forecast, putting the annual inflation rate at 1.4% in the first half of the year. That’s down from 3.4% in the year-ago period and the slowest in 11 years.

Real yields for 30-year Treasuries--calculated by subtracting the current inflation rate from actual yields--are near their highest levels in about 2 1/2 years. That means bonds may have more room to rally, investors said.

Meanwhile, other stock market indexes set records. The Nasdaq index soared 38.52 points, or 2.50%, to 1,580.63, its 10th straight record close and its largest point gain, surpassing the record set May 2, when it shot up 35 points.

In the broader market, advancing issues led decliners 1,990 to 907 in very heavy trading on the New York Stock Exchange.

“It’s a powerhouse day for the stock market in general,” said Robert Stovall, president of Stovall/21st Advisers. “The Dow is the focus, but it’s really the junior stocks and the tech stocks that have done so well.”

The Dow’s gain came despite a sharp sell-off in one of its 30 component stocks, Eastman Kodak, which fell $8.75 to close at $68.13 after it reported second-quarter earnings that were well below Wall Street’s expectation.

But Kodak’s disappointing results were offset by strong earnings elsewhere and further evidence that there are no signs of inflation.

Stronger-than-expected earnings reported late Tuesday by Intel Corp. provided the catalyst for the huge rally in technology shares.

The dollar fell to 1.7910 marks from 1.7935 on Tuesday and to 115.52 Japanese yen from 115.53.

Overseas, Brazilian stocks stormed back after Tuesday’s rout, recording the biggest single-day rise in 28 months, as investors regained confidence in the country’s economic stability.

Sao Paulo’s Bovespa index surged 1,024 points, or 8.8%, to 12,641, almost completely wiping out Tuesday’s 1,081-point decline that came amid concern about possible devaluation of the real, Brazil’s currency. Elsewhere, London’s FTSE-100 closed at 4,964.2, up 64.9 points, or 1.32%. In Tokyo, the 225-stock Nikkei average closed at 20,358.74, up 289.33 points, or 1.44%.