Stocks sluggish despite lower rates 30-year bond closes at record low yield

WALL STREET

August 04, 1993|By Bloomberg Business News

NEW YORK -- U.S. stocks were mixed yesterday as optimism about falling worldwide interest rates offset concern about the economic recovery.

Stocks also were constrained by the budget debate in Washington, which is expected to be resolved later this week.

"The market is caught in a tug of war between those who think earnings are recovering and those who think the economy is weakening again," said Joseph Doyle, a principal at 1838 Investment Advisors L.P., which manages about $3 billion.

The Dow Jones industrial average advanced 0.28, to 3,561.27, gaining little strength from a decline in long-term interest rates to the lowest level ever.

The benchmark 30-year bond, after being up as much as 5/8 , closed up 3/8 , or $3.75 per $1,000 bond, to close at 107 26/32. The yield was 6.52 percent, down three basis points on the day and the lowest closing yield ever. The yield traded as low as a record 6.51 percent, surpassing the record of 6.52 percent set July 16. The Treasury began selling 30-year bonds regularly in 1977.

Bonds surged early yesterday amid speculation that investors were gobbling up so-called zero-coupon bonds. People are buying the volatile "zeros" to get the biggest bang for their buck as the rally continues. The Standard & Poor's 500 Index dropped 0.88, to 449.27. The Nasdaq Combined Composite Index rose 1.35, to 709.01, closing below its record 712.49, reached July 14. The American Stock Exchange Market Value Index fell 0.59, to 437.29. Advancing stocks led declining issues by about 8-to-7 on the New York Stock Exchange.

"Interest rates are coming down around the world, and that would be a bullish sign for stocks if worldwide economies weren't so weak," said Anthony Conroy, head trader at Mabon Securities Inc.

The Commerce Department released more evidence yesterday that the U.S. economic recovery is sluggish. The government said the Index of Leading Economic Indicators, which is designed to predict the rate of economic growth over the next six months, rose 0.1 percent in June, below economists' forecasts of 0.3 percent expansion.

Expectations of lower interest rates in Europe began to grow Monday when the European Community agreed to widen trading ranges for EC currencies to 15 percent from as little as 2.25 percent. The decision means the EC's exchange-rate mechanism would survive in name but would do little to foster monetary stability.

"People are taking a closer look to determine what the European situation means for U.S. stocks," said Dale Tills, head of institutional equities at Charles Schwab in San Francisco.

Some think a decline in European interest rates will attract money overseas and away from the U.S. market, Mr. Tills said. Others predict a rates decline will rejuvenate European economies and thereby boost U.S. exports and stocks, he said.

Trading was active on the Big Board, as 253 million shares changed hands.

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