Bond Yields Fall to 4-Year Low on Manufacturing Data; Dow Rises
A report showing slower growth in manufacturing helped send yields on U.S. bonds plunging to a four-year low, while stocks rose modestly in quiet post-New Year’s holiday trading Friday.
The dollar reached its highest level against the yen in five years amid continuing anxiety over battered Asian economies.
The Dow Jones industrial average rose 56.79 points to close at 7,965.04, capping a gain of 304.91 points for the week.
Economic data released Friday, which showed U.S. manufacturing activity in December increased at a slower-than-expected pace, buoyed optimism in the inflation-wary bond market. The yield on the benchmark 30-year Treasury bond plunged from Wednesday’s 5.92% to 5.82%, the lowest since October 1993.
“The industrial side of the economy is slowing, largely based on what is occurring in Asia,” said Kevin McClintock, head of taxable fixed income at Dreyfus Corp. That’s good for bonds because slowing growth eases the threat of inflation, which erodes the value of bonds’ fixed payments.
Slowing growth in Asia is likely to hurt demand for U.S. exports in 1998, analysts say. Moreover, domestic producers could suffer from a flood of cheaper imports from the ailing Pacific Rim brought on by the strong dollar.
The report by the National Assn. of Purchasing Management showed its manufacturing index declining to 52.5 in December, from 54.4 the month before, as slowing growth in Asia and railroad snarls hurt orders and production. The association’s Prices Paid Index, an inflation gauge, also declined.
The dollar’s climb to a 5 1/2-year high against the Japanese yen helped boost bonds. A strengthening dollar helps U.S. bonds by increasing the returns overseas investors receive once the proceeds are converted into their own currencies. The dollar rose to 132.55 yen from 130.42 yen on Wednesday.
Financial markets were closed on New Year’s Day.
In the broader stock markets, advancing issues outnumbered decliners by a narrow margin on the New York Stock Exchange in light trading.
The Standard & Poor’s 500-stock index rose 4.61 points to 975.04, less than 9 points from record terrain; and the NYSE composite index rose 0.96 of a point to 512.15, about 2 points shy of a new closing high.
The Nasdaq composite index rose 11.18 points to close at 1,581.53, but the Russell 2,000 index of smaller companies slipped half a point to 436.52.
“There were a lot of crosscurrents in the market today,” said Hugh Johnson, chief investment officer at First Albany. “The good news that inflation and interest rates are headed lower was offset by worries about the strength of the economy and earnings.”
Among Friday’s highlights:
* Despite the day’s light volume, trading among telecommunications issues was heavy after late Wednesday’s surprise ruling by a federal judge in Texas that the Telecommunications Act of 1996 unconstitutionally barred the Baby Bells from providing long-distance and other services.
The Dow’s biggest decliner was AT&T;, which slid $2.50 to $58.81 as the most active issue on the NYSE. Among other long-distance providers, WorldCom fell 31 cents to $29.94, and MCI Communications fell 13 cents to $42.69.
The regional Bells gained on the ruling. Ameritech jumped $1.38 to $81.88; SBC Communications, which sued to overturn the law, rose $1.69 to $74.94; BellSouth rose 44 cents to $56.75; and US West Communications Group rose $1 to $46.13.
* Computer issues rose as concern that weakness in Asia will dent sales of computers eased after CompUSA said this week that sales at stores open at least a year rose a better-than-expected 8.8% last quarter. The company cited strong demand for low-priced PCs and software for the increase.
Compaq rose $3.13 to $59.63, Hewlett-Packard jumped $2.19 to $64.566, Dell Computer added $1.75 to $85.75 and Apple Computer rose $3.13 to $16.25.
Meanwhile, database software maker Sybase dropped $3.38 to $9.94 after signaling weak earnings.
Cisco Systems rose $2.31 to $58.06 after the company said it will ship the first version of its newest switching technology in the second quarter of 1998.
* Ontario-based Kaiser Ventures dropped $1.75 to $10.25 after a tentative court ruling rejected the environmental-services company’s latest proposal for a landfill project in Southern California.
Overseas, Frankfurt’s Dax-30 index rose 1.5%, and London’s FTSE-100 rose 1.1%. Tokyo and Seoul financial markets were closed for a holiday.
