Treasury Bonds Post Sturdy Gains : Market Benefits as Prospect Dims for Fed to Boost Rates
Treasury bond prices made strong gains Tuesday, supported by rising bond futures that surged in response to government reports that analysts said could point to a lackluster economy.
Prices of 30-year Treasury bonds rose more than 1/2 point, or $5 for every $1,000 in face value, with the yield falling to 7.35% from 7.41% late Monday.
The Commerce Department reported that its index of leading indicators, the government’s main gauge of future economic activity, rose 0.6% in October, its best gain in three months.
But analysts said the gain stemmed from special factors, rather than underlying economic strength that could put upward pressure on interest rates in the months ahead, and noted that the government’s original estimate of September growth in the index was revised downward.
The economic reports helped boost Treasury bond futures on the Chicago Board of Trade, which in turn bolstered the cash bond market, analysts said.
Easing of Credit
Continued lackluster performance by the economy indicates to many market participants that the Federal Reserve Board is unlikely to push interest rates higher in the near future and that it even might ease credit in another attempt to stimulate the economy, Wood said.
The federal funds rate traded at 5.875%, down from 7% late Monday.
In the secondary market for Treasury bonds, prices of short-term governments were up in the range of 2/32 point to 5/32 point, intermediate maturities rose 7/32 point to 9/16 point and 20-year issues were up more than 1 point, according to the investment firm Salomon Bros. Inc.
In corporate trading, industrials were up 5/8 point in light trading and utilities rose point in active trading. Among tax-exempt municipal bonds, general obligations were up in light trading and dollar bonds were up 3/8 point in moderate dealings.
Yields on three-month Treasury bills fell 2 basis points to 5.40%, six-month bills fell 3 basis points to 5.43% and one-year bills were off 3 basis points at 5.46%. A basis point is one-hundredth of a percentage point.
