Bond Market Rebounds Amid Volatile Trading : Analysts Cite Technical Factors, Bargain Hunting, Stronger Dollar Showing
Bond prices rose along with stocks in volatile trading Tuesday, recovering from sharp declines earlier in the day, as fears about renewed inflation and a weak dollar subsided.
Even as the Dow Jones index of 30 industrial stocks posted a 66.47-point gain to close at 2,337.07--second only to a 69.89-point gain on April 3--long-term bonds were up nearly a full point after severe losses in early trading.
The Treasury’s key 30-year bond, off as much as 1 3/4 points during the day, closed up about 3/4 point, or $7.50 per $1,000 in face value. The yield fell to 8.29% from 8.39% on Monday. Corporate and municipal bonds also rebounded.
Analysts said technical factors, bargain hunting inspired by recent price drops and a slight improvement in the dollar in domestic trading may have accounted for some of Tuesday’s rally in the absence of any fresh significant economic data.
The dollar fell marginally in Europe but was up against most major currencies in New York.
But Robert Brusca, chief economist at Nikko Securities Co. International, said “there doesn’t seem to be any fundamental reason” for the abrupt trading pattern. “Today . . . was a crazy, illiquid volatile market,” he said.
Despite the pickup in bond prices, analysts said, Tuesday’s trading reflected general uncertainty about the direction of inflation and interest rates.
“Generally, there’s a fear of not knowing where things are headed,” said Maria F. Ramirez, first vice president of Drexel Burnham Lambert.
A weak dollar and inflation are two key concerns in the credit markets because they erode the value of dollar-denominated securities, such as bonds and notes.
In the secondary market for Treasury bonds, prices of short-term governments rose between 1/8 point and 3/16 point, intermediate maturities ranged from 3/8 point to 1/2 point higher and 20-year issues were up about 3/4 point, according to figures provided by Telerate Inc.
Industrials, Utilities Rise
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 were up point and utilities rose 3/4 point in light trading, according to the investment firm of Salomon Bros.
Among tax-exempt municipal bonds, general obligations were up 1/2 point in light trading and revenue bonds were 3/4 point higher in active trading.
Meanwhile, yields on three-month Treasury bills were down 26 basis points to 5.49%. Six-month bills fell 13 basis points to 5.83% and one-year bills were down 9 basis points at 6.09%. A basis point is one-hundredth of a percentage point.
The federal funds rate, the interest on overnight loans between banks, traded at 6.25%, up from Monday’s 6.125%.
The broader market of New York Stock Exchange-listed issues also rose, but less dramatically than the Dow. Gainers outpaced losers by about three to two on the NYSE.
