Rising Bond Yields Trigger Broad Sell-Off

Rising bond yields triggered a broad sell-off on Wall Street on Monday, and investors’ jitters about interest rates also fueled declines in recently hot Latin American markets.

The Dow Jones industrial average lost 63 points, or 0.6%, to 10,958.59. Broader indexes mostly suffered deeper losses.

The yield on the 10-year Treasury note, a benchmark for mortgages and other long-term interest rates, jumped to 4.75%, up from 4.68% on Friday and the highest since June 2004.

Shorter-term Treasury rates also continued to move higher.

“The worry is that the lid, or the cap, on interest rates is now off,” said Hugh Johnson, chief investment officer of Johnson Illington Advisors.

The 10-year T-note has risen from 4.39% at year-end.

Bond yields have been pushed up since late January amid generally strong reports on the U.S. economy and as investors have focused on rising yields in Europe and Japan.

With Japan’s economy improving, analysts believe the country’s central bank will probably begin tightening credit soon. The bank’s policymakers meet Wednesday and Thursday.

U.S. investors fear that rising interest rates in other countries could contribute to more rate hikes domestically.

“A lot of the fuel that has been used to invest in this bond market has been derived from ‘easy money’ in Japan,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

Stock investors have been torn between worries about rising rates and optimism about the economic strength that is boosting those rates.

But on Monday, sellers prevailed on Wall Street, despite a sharp drop in oil prices and AT&T;’s surprise announcement that it would buy BellSouth.

The Standard & Poor’s 500 index declined 8.97 points, or 0.7%, to 1,278.26, and the Nasdaq composite lost 16.57 points, or 0.7%, to 2,286.03.

The Russell 2,000 small-stock index sank 1%.

Falling stocks outnumbered winners by more than 2 to 1 on the New York Stock Exchange in active trading.

The Dow was down as much as 92 points at midday, before recouping some of that.

Higher U.S. bond yields caused some investors to pull back from Latin American stocks and bonds, which have rallied sharply this year.

Mexico’s main stock index slumped 197.79 points, or 1%, to 18,991.46. The Brazilian market tumbled 885.77 points, or 2.3%, to 38,353.98.

Before Wall Street opened, however, Japan’s market rebounded after losing ground last week. The Nikkei index rose 1.5% to 15,901.16.

Among the day’s market highlights:

* Near-term crude futures in New York sank on indications that the Organization of the Petroleum Exporting Countries won’t cut production levels soon. Prices had hit a one-month high Friday.

Oil fell $1.26 to $62.41 a barrel. That hurt energy stocks, which lost 2.8% on average. Chevron lost $1.12 to $55.85; Baker Hughes slid $3.44 to $66.68.

* Investors retreated from other commodities as well. Near-term gold futures in New York dropped $11.10 to $554.90 an ounce. Among gold miners, Newmont Mining was down $2.34 to $50.83.

* AT&T;’s deal to buy BellSouth for $67 billion pushed up some telecom-related issues while depressing others.

BellSouth jumped $3.04 to $34.50; AT&T; slid 97 cents to $27.02.

Other stocks gaining on speculation of more consolidation in the sector included Sprint Nextel, up $1.10 to $25.30, and Qwest Communications, up 25 cents to $6.84. But some equipment suppliers to BellSouth plunged. Redback Networks sank $3.35 to $18.40 and Tellabs slid $1.98 to $13.03.

* Many financial stocks were lower on worries about interest rates. Mortgage lender Countrywide Financial retreated 48 cents to $34.66. Comerica was down 58 cents to $56.34.

* An index of utilities lost 2.2% for the second-worst performance among 10 industry groups in the S&P; 500. Shares of utilities may become less attractive for their dividends if bond yields continue to rise. Texas-based power producer TXU lost $2.26 to $50.67. Public Service Enterprise Group, owner of New Jersey’s largest utility, fell $2.90 to $66.63.

* Education Management rallied $4.66 to $41.64. Providence Equity and Goldman Sachs agreed to pay $43 a share for the company, 16% more than Education Management’s closing price Friday.

Corinthian Colleges, which specializes in schools for healthcare professionals, rose 90 cents to $14.34.

Apollo Group, the biggest U.S. for-profit education company, jumped $2.30 to $50.59.

* Real estate investment trust shares bucked the market downtrend, after CarrAmerica, a manager of office buildings, agreed to be acquired by buyout firm Blackstone Group for $5.6 billion, or $44.75 a share. CarrAmerica soared $3.45 to $44.53.

Also in the REIT sector, Glendale-based Public Storage, the largest U.S. operator of self-storage facilities, gained $1.10 to $79.46. The company is close to buying rival self-storage company Shurgard Storage Centers for $3.2 billion, the Wall Street Journal said. Shurgard rose 18 cents to $63.60.

Among other REITs, Mack-Cali gained 90 cents to $45.72, AvalonBay Communities surged $3.20 to $105.19 and Kimco Realty rose 83 cents to $37.08.