Bond Prices Decline as Oil Futures Rise
Despite the stock market’s rise to record levels Thursday, government bond prices fell as traders reduced their fixed-income holdings as crude oil futures prices rose and speculation grew that December’s employment figures would show signs of some modest economic growth.
The Treasury’s 30-year issue was off 11/32 point to yield 7.32%, up from 7.30% late Wednesday.
Prices of some corporate bonds rose, however, while prices of some tax-exempt bonds were unchanged to lower.
The Dow Jones average of 30 industrial stocks gained 8.30 to 2,002.25, its fourth consecutive record close and the first time the index has crossed the 2,000 mark. Since Jan. 1, the Dow index has gained more than 105 points.
Elliott Platt, research director for the investment firm Donaldson Lufkin & Jenrette Securities, said the price decline in Treasury issues stemmed partly from a “strong gain” in prices of crude oil futures.
Rising oil prices could lead to a revival in inflation, which erodes the value of bonds.
Platt said Treasury bond prices also fell because of speculation that the December unemployment report set for release today will show an increase in manufacturing employment and no change in the overall unemployment rate from November.
An increase in manufacturing payrolls could be a “sign of a pickup” in the economy, Platt said. When the economy strengthens, demand for credit often also increases, lifting interest rates and depressing bond prices.
In the secondary market for Treasury bonds, prices of short-term governments were off 1/16 point, intermediate maturities fell by between 1/8 point and 3/8 point, and 20-year issues slipped point, according to Telerate Systems Inc.
The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.
In corporate trading, industrials and utilities were up 1/2 point in active trading, according to Salomon Bros.
Among tax-exempt municipal bonds, general obligations were unchanged and revenue bonds were off point in moderate trading, Salomon Bros. said.
Yields on three-month Treasury bills were rose 7 basis points to 5.47%. Six-month bills were up 2 basis points at 5.48% and one-year bills also rose 2 basis points to 5.48%.
A basis point is one-hundredth of a percentage point.
The federal funds rate, which is the interest that financial institutions charge each other for short-term loans, fell to 5.875% from Wednesday’s 6.125%.
