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U.S. stocks tied to bonds
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January 4, 2000: 6:49 a.m. ET
Treasury yields, at two-year highs, spur concern about Fed rate action
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NEW YORK (CNNfn) - The stock market will focus its sights on the Treasury market again Tuesday as yields on government-issued securities hold steady at two-year highs, spurring concern among equity investors that the Federal Reserve will lift interest rates again soon to slow the economy.
Early indications suggest U.S. stocks will open sharply lower.
S&P futures on the Globex trading system were down 11.30 points at 1455.50. That's 14.05 points below fair value for the futures -- a formula taking into account interest and dividend effects -- which was estimated by London traders at 1469.55. Typically, one point of difference between the futures index and fair value equals about eight points on the Dow Jones industrial average as trading opens.
U.S. stocks took diverging paths Monday. Blue-chip stocks ended sharply lower on fears of rising interest rates, while the Nasdaq composite index managed a record close in one of its most volatile sessions ever.
The Dow Jones industrial average tumbled 139.61 points, or 1.2 percent, to 11,357.51, and the S&P 500 index fell 14.03, or nearly 1 percent, to 1,455.22. The Nasdaq composite ended the day at a new high of 4,131.15 -- a gain of 61.84 points, or 1.5 percent.
In Asia Tuesday, Tokyo’s blue chips powered to their highest close in more than two years, breaching the 19,000 mark for the first time in more than two years. But Hong Kong headed in the opposite direction, weighed down by heavy losses in New York.
Tokyo’s Nikkei 225 rose 68.52 points, or 0.4 percent, to 19,002.86, ending above the closely watched 19,000 mark for the first time since Aug. 21, 1997. In Hong Kong, the Hang Seng retreated sharply to close down 296.81 points, or 1.7 percent, at 17,072.82.
In Europe, major markets fell Tuesday, hit by the previous day's dismal performance on Wall Street as interest rate fears resurfaced. Bond yields soared as concern about an imminent rate rise by the Fed sowed apprehension among equity traders.
London's benchmark FTSE 100 extended early losses, falling 150 points, or 2.1 percent, to 6,782.4. Frankfurt’s electronically traded Xetra Dax declined 69 points, or about 1 percent, to 6,681.94, extending Monday's sharp loss. In Paris, the CAC 40 posted significant declines, falling 208.20 points, or 3.5 percent, to 5,709.17.
At issue for equity investors is the ill-performing U.S. Treasury market, which has seen yields on the 30-year benchmark bond surge on concern that the booming U.S. economy will spur the Fed into raising interest rates further in coming months.
Since Fed officials last raised short-term rates by a quarter point Nov. 16, bond investors have been betting that another rate rise will come in February, after all the Y2K glitches have worked their way out of the world’s computer systems.
Equity markets had chosen to go in a different direction, focusing on the strong-growth, low-inflation scenario that’s brought talk of a new economy to the forefront of Wall Street.
But that changed dramatically Monday, when the yield on the 30-year Treasury bond surpassed the 6.50 percent mark, suggesting the bond market is pricing at least one more rate increase from the Fed. Overnight, there was a slight break in the sell-off -- the 30-year bond rose 6/32 of a point in price, lowering its yield to 6.61 percent from 6.62 percent late Monday.
Rising bond yields affect both consumers’ and businesses’ borrowing costs by boosting mortgage rates at banks and making it more expensive for people and companies to borrow money.
In the currency market, the dollar was lower against both the euro and the yen.
One economic report that will shed some light on the pace of the U.S. economy is December’s employment data, to be released Friday. Analysts polled by Briefing.com expect that 224,000 new jobs were created last month, less than the 234,000 positions created in November, with average hourly earnings rising 0.3 percent compared to a 0.1 percent gain the month before. The unemployment rate is expected to have held steady at 4.1 percent.
On Tuesday, investors will focus on one economic release -- construction spending, which is expected to have slipped 0.1 percent in November, according to economists polled by Briefing.com. In October, spending on new home and business construction gained 0.3 percent.
Click here for Monday’s after-hours news
Click here for Monday’s after-hours trading
In corporate news, technology news and information company CNET Inc. (CNET) is expected to announce a deal with radio concern AMFM Inc. (AFM) Tuesday to create an all-technology radio format to extend CNET's reach beyond the Internet, according to the Wall Street Journal.
In its interactive edition, the Journal said the format will include a range of shows, from breaking news feeds to interviews with major industry figures, as well as reviews of new technology products and services.
Stories will be broadcast on CNET's online radio service and promoted on CNET's sites, the paper said. The partnership will start off small, at San Francisco station KNEW 910 AM, the Journal reported. The two will share revenue on advertising, which will be sold by the sales forces of both AMFM and CNET.
CNET shares rose 4-11/16 Monday to 61-7/16, and gained an additional 9/16 to 62 in after-hours trade. AMFM shares fell 1-1/8 Monday to 77-1/8.
Papa John’s International (PZZA), the publicly traded pizza-restaurant chain, may also gain attention after a federal judge ruled that the company must stop using its "Better Ingredients, Better Pizza” slogan in three weeks, and pay rival Pizza Hut almost $468,000 in damages.
Papa John's rose 11/16 Monday to 26-3/4.
New Tel (NWLL) could garner some interest after the Australian telecommunications company told shareholders it has signed a deal in China to help set up an Internet service there. As part of the agreement, New Tel will ally with the government-controlled Xinhua Holdings Ltd. to set up an Internet service provider and portal in both the Chinese and English languages.
New Tel shares rose 7/32 to 8-7/32 during the regular trading session Monday, then bolted an additional 7-25/32 to 16 in after-hours trade. 
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