Bond Prices Slip as Market Pauses After Recent Surge
Long-term bond prices dipped Tuesday as the credit markets paused from the advance of the past several sessions.
However, the Dow Jones average plunged 43.31 to 1,817.21, as Wall Street’s insider trading scandal hit the market full force.
Bond market analysts said prices were depressed by several factors, including profit taking following recent price gains and uncertainty over imminent economic reports.
The bellwether 30-year U.S. Treasury bond fell $5 for each $1,000 in face value, with its yield rising to 7.52% from 7.48% late Monday.
A number of traders cashed in gains made in recent days when prices rose on speculation that a continuing stream of weak economic reports lessened the possibility that the Federal Reserve Board would be tightening credit--and driving up interest rates--in the near future.
“There’s also some reaction to the fact that we’ve come a ways, and many people perceive us to be at a technical resistance level,” said Philip Braverman, an economist for Irving Securities Corp.
Economic Reports Due Out Today
The government is scheduled today to release its revision of the third-quarter gross national product as well as figures on October housing starts and third-quarter corporate profits.
Steep declines in precious metals prices, regarded as an inflationary index by many investors, also had buoyed bond prices recently. But gold prices steadied Tuesday after tumbling as much as $18 an ounce in worldwide trading on Monday, with bullion for current delivery rising Tuesday by $5.40 an ounce to $394 on the New York Commodity Exchange.
Analysts said price declines also were aided by impending auctions of two-year and five-year Treasury issues, which will increase the amount of securities that the market must absorb.
Also overhanging the market was the renewed scrutiny of high-yield, low-grade “junk bonds” used frequently in financing corporate takeovers. The government’s widening investigation into illegal insider trading on Wall Street reportedly involves the junk-bond operations of Drexel Burnham Lambert, the premier underwriter and market maker of such bonds.
Traders said prices of many junk bonds issued by the firm declined Tuesday for the second straight session.
In the secondary market for U.S. Treasury bonds, prices of short-term governments were off about 2/16 point, intermediate maturities were off in the range of 3/16 to 5/16 point and long-term issues were down about 1/2 point.
In corporate trading, industrials were off point in moderate to heavy trading, while utilities were down as much as point in quiet activity.
Among tax-exempt municipal bonds, general obligations were unchanged and revenue bonds were off 1/2 point in moderate trading.
Yields on three-month Treasury bills were off 4 basis points at 5.34%, while six-month bills fell 3 basis points to 5.41%. One-year bills were unchanged at 5.48%.
The federal funds rate, the interest on overnight loans between banks, traded at 5.9375%, down from 6.0625% Monday.
In terms of points, the stock market’s decline was the fourth-worst drop ever. Eight of the 10 biggest slides have occurred this year, including the biggest of all, on Sept. 11, when the closely watched Dow Jones industrial index fell 86.61 points to 1,792.89.
At the American Stock Exchange, the market-value index fell 3.47 to 261.23. The NASDAQ composite index for the over-the-counter market closed at 352.62, down 4.45.
