Closing Market Report

Star-Bulletin news services

Friday, September 14, 2001

2-year note yields
hit 43-year low

It falls to 2.86% in the 2nd day of
bond trading while oil and gold
surge in limited N.Y. activity

Star-Bulletin news services

NEW YORK >> Wall Street promised to reopen for business Monday morning even as thousands of utility workers raced to restore communications and power to the city's devastated financial district.

While the stock markets remained closed for the fourth straight day today, some trading involving government bonds and commodities took place for the second day in a row at the Chicago Board of Trade and Chicago Mercantile Exchange.

U.S. Treasuries gained, pushing two-year yields to the lowest level in almost half a century, as Tuesday's terrorist attacks drove investors to the safety of the most actively traded government securities.

In addition, gold temporarily touched $300 an ounce while oil approached $30 a barrel.

Two-year notes, which account for as much as 40 percent of trading by primary dealers, rose 6/32, or $1.88 per $1,000, to 101 13/32, according to Toronto Dominion. Yields fell 12 basis points to 2.86 percent in the second trading day after a two-day closure after the attacks destroyed the World Trade Center in New York and damaged the Pentagon near Washington.

"This is a natural flight to Treasuries," said David Kotok, president and chief investment officer of Cumberland Advisors Inc. in Vineland, N.J., which has $500 million under management. "Americans certainly consider them the safest securities. A better part of the world considers them to be so, as well."

Two-year Treasury yields dropped more than a half-percentage point this week, to the lowest level since 1958 amid expectations the Federal Reserve will lower interest rates before its scheduled meeting on Oct. 2. That has widened the gap between two- and 30- year Treasury yields 7 basis points to 2.48 percentage points, the widest in eight years.

Three-month Treasury bills, which account for about 14 percent of trading by primary dealers, were among the biggest gainers. The yield on the securities fell 17 basis points today to 2.64 percent. Yields fell 57 basis points in the last two days, the biggest decline since Oct. 13, 1989, when the Dow Jones industrial average tumbled 6.9 percent. The 10-year note was up 21/32 point, or $6.56 per $1,000 in face value, while its yield fell to 4.55 percent, from 4.64 percent yesterday. The 30-year bond rose $5.31 per $1,000 to yield 5.36 percent, below the 5.40 percent from yesterday. Bond trading closed early, at 2 p.m. EDT, on the recommendation of the Bond Market Association, an industry trade group. An abbreviated session was also recommended for Monday.

Gold futures rallied sharply today, tapping $300 an ounce in the first metals business conducted by the COMEX since Tuesday's terror attacks on American soil.

Today's trades were conducted over the New York Mercantile Exchange's brand-new Internet version of its ACCESS after-hours electronic trading system, which was rushed into operation after COMEX and NYMEX were closed Tuesday. The session was supposed to run to 5 p.m. EDT but was halted shortly after it started because of technical reasons.

The December gold futures contract initially jumped more than $26 to $300 an ounce, its highest since May 21, catching up with the flight-to-quality rally in London since the exchange closed when the nearby World Trade Center was hit and destroyed by two hijacked commercial airliners. The contract immediately subsided to stand at $290 an ounce as of the halt to trade, still up $16.30.

Crude oil trading rose to near $30 a barrel today on the New York Mercantile Exchange, which was holding an Internet-based trading session, its first since the attack on Tuesday. Crude oil for October delivery was recently trading up $1.95, or 7 percent, at $29.72 a barrel.

Meanwhile, some experts were skeptical of the stock market plan announced yesterday, however, given the logistics of getting the markets up and running because of the extensive physical -- and psychological -- damage caused by the terrorist attack.

"It's going to be a long weekend, but they'll probably be limping along on Monday," said Dave Farber, a professor of telecommunications at the University of Pennsylvania.

The NYSE, Nasdaq Stock Market, American Stock Exchange and other members of the trading community planned extensive testing tomorrow to make sure systems would work.

New York Stock Exchange Chairman Richard Grasso estimated between 75,000 and 100,000 people would come in to work when the markets reopened. Currently, travel is restricted because of worries that the buildings are unstable.

Elsewhere, Ford Motor Co. said today it would sharply cut production for the rest of the third quarter, and warned that earnings for the period would not meet prior forecasts. Ford said plans to cut North American vehicle production by 110,000 to 120,000 units to 810,000 to 820,000 units for the third quarter were due to parts shortages resulting from transportation problems.

Also, General Electric Co. said today its Employers Reinsurance Corp. unit expected $600 million in claims from the destruction of the World Trade Center, which would cut third-quarter earnings slightly.

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