Bond Yields Soar to 6.14%; Stocks Barely Respond
A “buyer’s strike” in the bond market sent yields surging Wednesday for a fourth straight session, but the stock market seemed only mildly annoyed.
The yield on the bellwether 30-year Treasury bond soared to 6.14%, up from 6.06% on Tuesday and the highest since the 19-month high of 6.16% reached on June 11.
On Wall Street, however, the Dow industrials fell just 54.77 points, or 0.5%, to 10,666.86, closing above their lows for the day.
With Federal Reserve policymakers meeting next Tuesday and Wednesday--and widely expected to raise short-term interest rates--”investors are staying away” from bonds, said Astrid Adolfson, economist at MCM MoneyWatch.
Even though the Fed’s move is expected to be modest--a quarter-point rise in its benchmark short-term rate, now 4.75%--”nobody has a good handle on what the Fed’s going to do” longer term, said George Adell, trader at Starboard Capital Markets.
Making matters worse is a glut of supply, led by heavy bond issuance by major U.S. companies.
Also, the Treasury sold $15 billion in new 2-year notes Wednesday, and demand was the weakest in 17 years. The ratio of bids to notes sold was 1.71 to 1, far below the usual ratio of more than 2 to 1.
The yield on the notes was 5.75%, highest since September 1997.
“It was a horrible auction,” said Rob McCool, a trader at Banc One Capital Markets.
But the stock market largely shrugged it off. Losers topped winners by 17 to 12 on the New York Stock Exchange, but major indexes were mixed.
The Nasdaq composite, boosted by a continuing rebound in many tech stocks, rose 17.86 points, or 0.7%, to 2,598.12.
The Standard & Poor’s index of mid-sized stocks rose 0.8%.
“The market continues to mark time,” said Alan Ackerman, analyst at Fahnestock & Co. in New York. “People are very conflicted by fear of what the Fed will do.”
Scott Bleier, strategist at Prime Charter Ltd., said that while many traders are beginning to accept the possibility of two rate increases, some fear the Fed will raise rates three times, wiping out the cuts the central bank initiated last fall to help protect the global economy after Russia’s currency devaluation.
“There’s a belief that the bull market could not survive three rate increases,” Bleier said.
So far, however, the Dow is down just 4% from its record high reached May 13.
Among Wednesday’s highlights:
* Major tech stocks were strong, led by Sun Microsystems, up $1.50 to close at $66.69; National Semiconductor, up $2.13 to $24.63; Cisco Systems, up $2.38 to $61.88; and Texas Instruments, up $3.69 to $138.13.
But 3Com slid $4.38 to $27.13 on disappointment about its earnings report.
* Internet stocks were mixed but mostly higher after a weak opening. Huge gains for some new Net-related stocks might have helped sentiment. Inktomi jumped $4 to $117.31, Yahoo rose $3 to $155.50 and America Online gained $2.25 to $111.75.
EarthLink Networks rose $4 to $61.25 on continuing rumors about a bid for it by Gateway.
* Oil stocks rallied as crude oil prices jumped 70 cents to $18.45 a barrel on news of tighter U.S. inventories. Exxon added $1.13 to $78.13, Noble Affiliates rose $1.19 to $28 and ENI rose $1.38 to $62.75.
* On the down side, banks and brokerage stocks were under pressure as interest rates rose.
J.P. Morgan slid $4.38 to $130.63, Wachovia fell $1.75 to $84.63 and Merrill Lynch was off $1.06 to $74.69.
Even a strong second-quarter earnings report from Goldman Sachs couldn’t save the investment bank from the sector’s weakness. Goldman’s shares fell $3 to $65.
In commodities trading, cotton fell more than 5% to the lowest price in 6 1/2 years, as abundant world supplies threaten to overwhelm demand from mills.
Gold inched up $2 to $261.40 an ounce as the debate heated up in Congress about a plan to sell International Monetary Fund gold to help poor nations. Some key lawmakers oppose the plan.
Market Roundup, C9
