T-Bonds Go Wild as Stocks Fall

Treasury bond prices surged Monday in the biggest one-day rally in more than a year, driving long-term yields to new 30-year lows, amid falling stock prices and expectations of slowing growth worldwide.

“There’s the Treasury market and there’s every other market--and everyone wants to be in the Treasury market,” said Patricia Larkin, who manages about $35 billion of money market investments at Dreyfus Corp.

The latest rally pushed the yield on the bellwether 30-year T-bond down to 4.71% from 4.84% on Friday. Yields earlier touched 4.69%, the lowest for long-term government debt since April 1967.

The stock market, meanwhile, had a bad day overall after heavy losses in most foreign markets overnight, as Western leaders appeared to have no new plan to combat global economic woes. Tokyo shares fell to new 12-year lows.

But the Dow industrials rallied back from a decline of more than 200 points to finish down 58.45 at 7,726.24.

Technology stocks were the day’s big losers, dragging the Nasdaq composite index down 4.9% to 1,536.69.

And smaller stocks in general were trashed amid worries about the economy. The Russell 2,000 index of smaller stocks fell 12.91 points, or 3.7%, to 336.80 and at one point surpassed the low reached in late August, before the market’s September bounce.

Declining issues outnumbered advancers by a 3-1 margin on the New York Stock Exchange in heavy trading.

To some pros, T-bonds’ rally was more noteworthy than stocks’ latest slide. T-bond yields have been plunging for the last three months as investors have run to “safe haven” securities amid the global financial and economic turmoil.

On Monday, Federal Reserve Board Gov. Laurence Meyer hinted that the Fed would continue to push interest rates overall lower to guard against recession--giving investors another reason to buy bonds.

Also helping drive T-bond price gains: expectations that loss-ridden hedge funds, Long-Term Capital Management among them, will soon be forced to reverse “short sales” of Treasuries as they sell holdings of riskier emerging-market, junk and mortgage debt, traders said.

“Until the hedge funds are liquidated, the bid for Treasuries won’t go away,” said Timothy Wilhide, who helps oversee about $54 billion in investments at Hartford Investment Management.

In a bond short sale, traders borrow bonds and sell them, speculating that they’ll be able to buy them back later at a lower price. The reverse has happened with T-bonds--so short sellers now must cover losing bets by buying bonds, in turn driving their prices even higher.

What was good for bonds didn’t help the dollar, however: It fell against the German mark for a sixth day and dropped against the Japanese yen on expectations of still-lower U.S. interest rates.

The dollar fell to 1.629 marks from 1.646 Friday and traded at one point at a 29-month low. Among Monday’s highlights:

* Financial stocks were hammered again. Losses from trading securities and currencies in emerging markets has begun to chip away at the earnings of companies such as J.P. Morgan, whose stock slid $3.63 to $79.88 on Monday. Travelers Group fell $4.13 to $34.44, and Citicorp, its merger partner, was down $9 at $86.

* Airlines also were weak, driving the Dow transports index down 2.8% to 2,529.60, a new 52-week low.

* Telecom stocks were pummeled, led by Lucent, down $4.13 to $58.88.

But Swiss telecommunications concern Swisscom sold 22 million American depositary receipts for $5.56 billion, or $25.30 each, in the year’s largest initial public offering by a European company. The ADRs rose $2.33 to close at $27.63.

* Coca-Cola and PepsiCo rose after reporting strong soft drink sales over the Labor Day period, a key selling season for soda companies, the two largest. Coke gained $2.50 to $61.44; Pepsi rose 94 cents to $31.38.

* Sequus Pharmaceuticals gained $3.19 to $14.06 on the news that Alza, maker of the Nicoderm CQ nicotine patch, will acquire it for stock valued at about $17 a share, or $580 million.

Major world stock markets continued to show concern about slowing growth. Hong Kong’s Hang Seng index slid 4%, and the Mexican market fell 2.9%, while Brazil’s market fell 4.5%.

In Europe, Frankfurt’s DAX index rose 1.8%, but London’s FTSE-100 fell 2.1%.

Market Roundup, C25