Yields Drop to 2-Month Low in Face of Greenspan Address
In a potentially good sign for mortgage rates and other long-term rates, Treasury bond yields tumbled on Tuesday to their lowest levels in at least two months--even as investors readied for another speech today by Federal Reserve Chairman Alan Greenspan.
The bond rally helped the battered stock market recover from early losses to finish mixed, with the Nasdaq composite index paring a 120-point loss to finish off just 29.62 points at 4,382.12.
The Dow Jones industrial average, which slumped nearly 300 points Friday to its lowest level since mid-October, regained 85.32 points to 10,304.84 on Tuesday, amid a slew of large stock-buyback announcements by blue-chip firms.
After the Monday holiday, investors returned to Wall Street in a buying mood--at least for Treasury bonds.
The 30-year T-bond slid to 6.08% from 6.15% on Friday, and now is the lowest since Nov. 16.
Many analysts remain wary of trying to call trends in Treasury yields, because the market is being buffeted by so many crosscurrents. The 30-year T-bond, for example, is benefiting in part from expectations that the government’s debt-buyback program will lead to a shortage of long-term T-bonds in coming years.
Still, some traders believe that Greenspan’s hard-line stance on slowing the economy via additional short-term interest rate hikes is helping drive down long-term yields, by lessening the threat of higher inflation.
Greenspan, speaking today to a Senate panel, is expected to reiterate his warning that the Fed is likely to continue raising its benchmark short-term rate, now 5.75%, until the economy hits the brakes.
Yet New York Federal Reserve Bank President William McDonough, speaking at a conference Tuesday, gave an upbeat outlook on inflation, saying the “inflation rate is low, and if anything, is going down a little bit,” excluding the effect of higher oil prices.
The 10-year T-note yield, at 6.36% on Tuesday, was down from 6.49% on Friday and far below its peak of 6.79% on Jan. 20.
Even the two-year T-note yield, which tends to rise as the Fed pushes its key short-term rate higher, pulled back Tuesday, ending at 6.56%. It peaked at 6.68% on Feb. 8.
Mortgage rates and corporate bond yields haven’t fallen much, if at all, in recent weeks. But lower Treasury yields could pave the way for other rates, analysts note, provided the Treasury rally doesn’t suddenly reverse.
The KDP index of junk bond yields ended at 10.68% on Tuesday. It has fallen modestly from a peak of 10.84% reached Jan. 20.
In the stock market, stock buyback announcements took center stage Tuesday, as a host of large companies whose shares have been hammered in recent months signaled that they think their stocks are relative bargains.
Drug giant Merck, for example, said it plans to buy back as much as $10 billion of its shares. The stock jumped $3.50 to $65.50, but remains down 25% from its 52-week high.
General Mills, which on Monday said it boosted its buyback plan to 170 million shares from 120 million, gained $1.38 to $33.44.
Other companies announcing large buybacks included Wells Fargo, up $1.50 to $35; Kimberly-Clark, up $2.44 to $55.31; and Visx, which fell $1.38 to $21.88 despite its announcement of a 10-million-share buyback.
Of course, simply announcing an intent to buy back shares doesn’t mean companies will actually do so. But the announcements at least serve to put Wall Street on notice that some companies believe the best investment they can make is in their own depressed shares.
As of Monday, however, the dollar volume of announced stock buybacks so far this year was about even with the total announced in the same period a year ago, according to Thomson Financial Securities Data.
Overall Tuesday, falling stocks still outnumbered winners 17 to 14 on the New York Stock Exchange and 24 to 18 on Nasdaq. Trading volume eased from recent highs.
Among Tuesday’s highlights:
* Major tech stocks were mixed, with semiconductor giants Texas Instruments up $15 to $149 and Motorola up $11.81 to $156.75 after Texas Instruments unveiled new chips for wireless phones.
But Sun Microsystems fell $4.81 to $88, Microsoft lost $1.25 to $93.81 and IBM fell $1.50 to $111.
* Many Internet stocks slid. EBay fell $2.75 to $134.50 and America Online fell $1.63 to $49.63. That is the first close under $50 for AOL in a slide that began after its January announcement of plans to buy Time Warner. Time Warner fell $2.50 to $73.56.
* Sotheby’s sank $2.13 to $15.63 after its chief executive resigned amid a price-fixing investigation.
* Recently hot biotech stocks continued to cool. Cephalon fell $4.25 to $58.50, Human Genome Sciences dived $25.75 to $174.50 and Affymetrix sank $25.81 to $255.19.
Market Roundup, C10
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Rate Reversal
Long-term Treasury bond yields have tumbled in recent weeks, pulling back to levels of late last year. Yields on 30-year and 10-year Treasuries,
weekly closes and latest:
Tuesday:
6.36%
30-year T-bond
10-year T-note
Tuesday: 6.08%
Source: Bloomberg News
