Bond yields climb Dow falls 31 points

April 29, 1994|By Bloomberg Business News

NEW YORK -- U.S. Treasury bond yields posted their biggest rise since August 1990 yesterday, sending stock prices reeling, as a government report showing the economy slowed in the first quarter failed to quell concerns about rising inflation.

The dollar tumbled to an eight-month low against the Japanese yen, exacerbating the declines in stocks and bonds, traders said.

"There is fear in the marketplace," said William Gross, managing director at Pacific Investment Management Co., with $54 billion in assets.

Despite yesterday's rout in bonds, the yield on the 30-year Treasury is still below its high close for this year of 7.41, reached on April 18.

The Commerce Department reported that the economy slowed during the first quarter but pointed out that part of the reason was winter storms and the California earthquake. That led investors to focus on figures in the report that showed prices rose more than expected. The increase supported speculation that the Federal Reserve will raise interest rates next month to keep inflation from surging.

The benchmark 30-year bond fell as much as 2 5/32 before closing down 1 3/4 , or $17.50 per $1,000, to yield 7.26 percent. That's up 15 basis points from Tuesday. At one point, the yield was up as much as 20 basis points.

"The reversal in bonds is killing the stock market," said William Lord, vice president in equity trading at UBS Securities Inc. "All the good earnings in the world aren't going to stop this."

The Dow Jones industrial average closed down 31.23, at 3,668.31. Better-than-expected earnings from Johnson & Johnson and General Motors Corp. helped to cushion the fall in stocks, traders said.

Broader stock market indexes also retreated. The Standard & Poor's 500 index closed down 2.76, at 449.11. The Nasdaq composite index closed down 2.52, at 731.69.

Oil shares were among yesterday's biggest decliners, reflecting a drop in petroleum prices. Chevron slid $2.25, to $88.625; Exxon Corp. dropped $1, to $61.875; and Mobil Corp. shed $2.25, to $77.375. The benchmark U.S. crude fell 34 cents, to $16.57 a barrel.

Thirteen stocks dropped for every nine that rose on the New York Stock Exchange. Trading was active, with about 325 million shares changing hands on the Big Board.

The Commerce Department report said gross domestic product growth slowed to a 2.6 percent annual rate in the first quarter from the fourth quarter's 7 percent pace.

One inflation measure in the report, the so-called price deflator, was higher than expected. It rose to a 2.6 percent annual rate in the first quarter from a 1.3 percent pace in the fourth quarter, fueling concern that the Fed may boost rates for a fourth time this year to pre-empt inflation.

Last week, the Fed raised the target for the federal funds rate, on overnight bank loans, to 3.75 percent from 3.5 percent, its third rate increase this year.

Meanwhile, the dollar fell to 101.34 yen from 102.35 yen late Wednesday, its lowest level since Aug. 19, amid persistent concern that political tensions in Japan will prolong the country's trade dispute with the United States.

The dollar fell against most major currencies, and was down to 1.6615 German marks from 1.6710 marks.

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