Commodities : Tuesday, July 8, 1986 : Interest Rate Futures Drop

Interest rate futures prices declined steeply Tuesday, reflecting a growing conviction that the economy is anemic and that the Federal Reserve Board may delay sending help by lowering the discount rate.

The feeling in the market, said analyst Gary Dorsch, “is that the economy is very sluggish and that U.S. manufacturing may be on the verge of a recession.” Treasury bond futures for delivery in September plunged by 1 27/32 points at the Chicago Board of Trade, settling at 98 9/32 points.

“A lot of traders in bonds are showing signs of anxiety about the course of Federal Reserve policy,” said Dorsch, senior money- market analyst in Chicago with G. H. Miller & Co.

A news story Tuesday quoting several Fed governors as saying they were reluctant to cut interest rates created the feeling that a reduction in the discount rate may be delayed until next month, he said. The discount rate is the rate the Fed charges on loans to banks and other financial institutions.

As with the stock market, Dorsch said, “interest rate futures need more fuel in the tank in the form of easy money. If the Fed doesn’t provide it, the engine begins to sputter.”