NEW YORK -- U.S. bonds fell yesterday for a fifth day, pushing yields to their highest since August 1991, after a report that unemployment fell to a four-year low prompted concern inflation will accelerate. Stocks, battered by computer-guided "sell" orders in the final half hour of trading, also plummeted.
"I don't see one single shred of good news for the bond market," said Michael Link, who manages the $232 million Gradison-McDonald Government Bond Fund in Cincinnati. "We're in a free-fall. There's no reason to buy, none whatsoever."
The 30-year bond fell 21/32, or $6.56 per $1,000 bond, pushing yields up six basis points, to 8.16 percent, the highest since Aug. 13, 1991. "The public is throwing in the towel," Mr. Link said.
Yesterday's reports of the biggest increase in hourly wages in 11 years and a drop in the unemployment rate to 5.8 percent from 5.9 percent suggests the economy is "at full employment and that wage pressures may be emerging," said Kevin Flanagan, an economist at Dean Witter Reynolds Inc. Inflation diminishes the value of bonds.
Another reason for traders and investors to avoid buying Treasuries yesterday is the government's sale next week of $29 billion in new securities, including $12 billion in 10-year notes. The 10-year note's yield reached a three-year high yesterday, at 8.03 percent.
U.S. stocks fell as concern about higher interest rates replaced optimism over corporate profits.
The Dow Jones industrial average slumped 38.36, to 3,807.52, Declines in International Business Machines Corp., International Paper Co. and Exxon Corp. led the slide.
"All year long, there has been this monumental tug of war between excellent earnings and the fear that interest rates are going higher," said Bill Spears, chairman of Spears Benzak Salomon & Farrell, which manages about $3 billion. "Now that we're getting to the end of the third-quarter reporting season, people are focusing on the economic numbers, which have been consistently stronger than anticipated."
Oil and computer companies paced the decline in the Standard & Poor's 500 Index, which plunged 5.63, to 462.28. The Nasdaq composite index first rose as much as 1.41, to 773.26, before closing down 6.02, at 766.08.
Oil and computer shares were among the best performers in the index this quarter, reflecting a stream of better-than-expected earnings in those industries.
"The euphoria associated with third-quarter earnings is ebbing," said Paul Ting, an analyst at Oppenheimer & Co.
Among computer companies, IBM slid $2.375, to $71.125, and Compaq Computer Corp. fell $1.50, to $38.50. In the oil industry, Chevron shed 87.5 cents, to $43.625; Exxon slipped $1.25, to $61.375; and Atlantic Richfield Co. eased $1.625, to $105.375.
The S&P; 500 has declined every day this week as the flood of third-quarter earnings slowed to a trickle. The index climbed as much as 2.4 percent this quarter, to close at 473.77 last Friday, before falling.
As of Thursday, 441 of the companies in the S&P; 500 had reported third-quarter earnings. Of those, 54.6 percent released earnings that were better than analysts expected.