NEW YORK -- U.S. government bonds rallied yesterday and yields fell to their lowest point in seven weeks as inflation concern eased, but stocks ended mostly lower and the dollar was off slightly.
The benchmark 30-year Treasury bond rose almost 1 point, or $10 per $1,000 bond, pushing the yield down eight basis points, to 7.84 percent. That's the lowest since Oct. 17, when it was 7.83 percent.
Stocks fell as Orange County, Calif., sorted out the losses run up by its investment pool and as Fidelity Magellan Fund, the country's biggest mutual fund, said it wouldn't make an announced distribution of funds to shareholders.
The Dow Jones industrial average recovered to close up 4.03, at 3,745.95, helped by a surge in Boeing Co. shares.
The broader Standard & Poor's 500 index slid 0.24, to 453.11. The Nasdaq composite index declined 4.48, to 741.23. Declining stocks outnumbered advancing issues almost 13-to-9 on the New York Stock Exchange.
Trading was unusually active, with more than 300 million shares changing hands on the Big Board.
Bonds rallied, some investors said, because the Federal Reserve has done enough to subdue inflation by raising interest rates six times since February. Inflation erodes the value of securities such as Treasury bonds that pay fixed returns.
"We've seen the peak in rates," said Dave Will, who oversees $300 million in fixed-income investments at Cardinal Asset Management in Columbus, Ohio. "There just aren't any inflationary pressures."
Inflation was running at a 2.6 percent pace for the first 10 months of the year, compared with 2.7 percent for the same period a year ago, according to the government's Consumer Price Index.
Optimism over rates didn't help the stock market. One reason was concern over Orange County, Calif., which is reeling from $1.5 billion in losses caused by bad bets on interest rates. After the market closed yesterday, the county decided to seek bankruptcy protection to keep investors from withdrawing their money and making things worse.
Meantime, Fidelity Investments said Monday that it wouldn't pay a 6.6 percent year-end distribution to holders of its $37 billion Magellan fund because of an unspecified error in calculation. The fund is down about 4 percent this year in the wake of the interest rate increases.
Fidelity's announcement stunned investors not just in the United States but worldwide, who look at the Magellan fund as a prime indicator of the health of the mutual fund industry.
The DAX Ibis index of 30 German stocks fell 1 percent, while the U.K.'s FT-SE 100 index declined almost 0.6 percent, to 3,016.1.
"The Fidelity thing, coming on top of the Orange County debacle, is going to unnerve some people," said Richard Ciardullo, head trader at Eagle Asset Management Inc.
The dollar fell slightly against major currencies yesterday, but recovered from earlier, larger losses as U.S. stocks weathered the turmoil at Fidelity.