Bond Yields Soar on Upbeat Economic Data
Bond yields rose further Thursday amid surprisingly upbeat economic reports, but stocks could muster only a mixed close after rallying sharply early in the day on the same news.
The government’s report that gross domestic product rose in the second quarter at a 2.4% real annualized rate was well ahead of expectations and triggered another sell-off in the battered bond market.
Other encouraging economic data also sent bond investors fleeing, on concerns that interest rates may continue to rise if the economy accelerates.
The 10-year Treasury note yield ended at 4.40%, up from 4.31% on Wednesday and near the one-year high of 4.44% reached Tuesday.
On Wall Street, the Dow Jones industrial average rose as much as 161 points, but closed with a gain of 33.75 points, or 0.4%, at 9,233.80.
The Nasdaq composite index added 14.11 points, or 0.8%, to 1,735.02 after rising as much as 37 points.
The Standard & Poor’s 500 index, which was up as much as 17 points, closed with a gain of 2.82 points, or 0.3%, at 990.31.
Amid heavy trading volume, rising stocks outnumbered losers by 19 to 13 on Nasdaq, but losers had a 17-to-16 edge on the New York Stock Exchange.
The GDP report will “push more people in the camp that believes we do have an economy that is growing and recovering and we will see even stronger growth in the second half,” said Brian Bush, director of equity research at Stephens Inc. in Little Rock, Ark.
That is expected to drive more investors into stocks -- and away from bonds, many analysts say.
“We’re clearly in a bear market for Treasuries,” Robert DeLucia, chief economist at Cigna Retirement and Investment Services in Hartford, Conn., told Bloomberg News.
The yield on the 10-year T-note has soared from a generational low of 3.11% on June 13.
Two reports Thursday added to the view that the economy was picking up speed: First-time filings for unemployment benefits last week fell for the third straight week, to the lowest level since early February; and an index of Chicago-area manufacturing rose in July to 55.9, its highest reading in six months.
Today, the government will report on employment in July. If the data are stronger than expected they could spark another jump in bond yields, analysts warned.
Eric Hiller, chief interest-rate strategist at Bank of America in Chicago, said the sharp advance in the yield on the two-year T-note Thursday -- to 1.76% from 1.63% on Wednesday -- suggested that investors were worried that the Federal Reserve might be forced to tighten credit sooner than expected. The 2-year T-note is particularly sensitive to expectations of Fed moves.
The jump in the note’s yield “is telling you that the Fed-on-hold picture may not be 18 months, but maybe more like 12 months,” Hiller said.
Whether that concern also spooked some stock traders late in the session wasn’t clear, analysts said.
Todd Clark, trader at Wells Fargo Securities in San Francisco, said there were rumors that a large computerized “sell” program was dragging the market down. It isn’t unusual for fund managers to make big portfolio shifts on the last day of the month, analysts said.
Selling pressure also might have come from investors who decided to take profits as key indexes rose close to, or topped, the 2003 highs reached in mid-June, Clark said.
The Dow rose as high as 9,361, surpassing this year’s previous closing high of 9,323.02 on June 17.
Despite largely treading water in recent weeks, major indexes posted gains for July overall. Nasdaq climbed for a sixth straight month -- a feat not seen in eight years. The Dow and the S&P; 500 completed five-month winning streaks, something they hadn’t accomplished since 1999.
Among the day’s highlights:
* Nasdaq was helped by gains in semiconductor stocks after Merrill Lynch upgraded a string of the shares to “buy” from “neutral.” Maxim Integrated advanced $1.41 to $38.93 while Microchip Technology jumped $1.59 to $22.35.
* Many Internet-related shares rallied. United Online rose $1.19 to $31.38, Amazon.com added 98 cents to $41.64 and Expedia jumped $1.44 to $78.11.
* Cardinal Health plunged $9.71 to $54.75 after the drug distributor forecast weaker-than-expected results in fiscal 2004.
* HMO shares were broadly lower, despite a strong earnings report from Aetna, whose shares slid $4.88 to $61.62. WellPoint Health tumbled $3.20 to $83.65.
