Stocks fall as yield on 10-year bond hits 5.295%
NEW YORK » Wall Street plunged yesterday as investors, driving the Dow Jones industrial average down nearly 130 points, grappled with a seemingly relentless rise in bond yields.
It was a fitful trading session that saw stocks tumble, claw their way back and then plummet again when the yield on the 10-year Treasury note soared to a five-year high of 5.295 percent.
The climb in bond yields exacerbated jitters about mortgage rates rising, which could hurt the already sluggish housing market, and about the Federal Reserve hiking interest rates, which would slow down corporate dealmaking.
Surging takeover activity had helped boost stocks to record levels until a week ago, when the benchmark 10-year Treasury note's yield passed 5 percent, unnerving stock investors and triggering a selloff.
"It's partially an excuse to take profits, but there are also some legitimate concerns that if bond yields get high enough, they will present an attractive alternative to stocks, and that higher interest rates will reduce private equity activity," said Edward Yardeni, president of Yardeni Research Inc.
The rise in Treasury yields yesterday was stoked by a tepid reaction to the government's auction of $8 billion in new 10-year notes, and further aggravated by confounding comments from former Federal Reserve Chairman Alan Greenspan, who said he is not worried about foreign governments selling their U.S. Treasury holdings, but added that yields will likely rise in the future.
The Dow Jones industrial average fell 129.95, or 0.97 percent, to 13,295.01. The blue chip index is 381 points, or 2.8 percent, below its record close of 13,676.32, reached June 4.
The broader stock indexes also declined. The Standard & Poor's 500 index fell 16.12, or 1.07 percent, to 1,493.00, while the Nasdaq composite index dropped 22.38, or 0.87 percent, to 2,549.77.
The Russell 2000 index of smaller companies was down 11.46, or 1.38 percent, at 821.72.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude futures fell 62 cents to $65.35 a barrel on the New York Mercantile Exchange.
Declining issues outnumbered advancers by about 5 to 1 on the New York Stock Exchange, where volume came to 1.25 billion shares.
The stock market saw losses in most sectors yesterday, but homebuilders saw particular weakness; Americans could be dissuaded from buying homes, as mortgage rates rise alongside the 10-year yield.
According to Bankrate.com, the average 30-year fixed-rate mortgage was at 6.33 percent yesterday, up from 6.07 percent a week ago.
Texas Instruments Inc., which makes semiconductors used in mobile phones, late Monday narrowed its second-quarter forecast. The stock fell 75 cents, or 2.10 percent, to $35.04.
Continental Airlines Inc. also slumped after analysts cut their earnings expectations for the airline. Continental fell $1.59, or 4.5 percent, to $34.10.
But Lehman Brothers Holdings Inc. reported a stronger-than-expected profit for its second-quarter. Bear Stearns Cos. and Goldman Sachs Group Inc. are expected to report tomorrow.
Lehman rose 38 cents to $76.06.