FINANCIAL MARKETS : Credit : Bonds Slump in Reaction to Further Drop in Dollar
Bond prices declined Thursday in mostly quiet, lackluster trading, weakened by the dollar’s slippage against other major currencies.
The Treasury’s closely watched 30-year issue fell about 5/16 point, or $3 per every $1,000 in face value. Its yield, which moves inversely to its price, edged up to 9.77% from 9.76% on Wednesday.
Corporate and municipal bonds were down 1/8 point to point.
“The tone of the market continues to be on the negative side,” said Maria Ramirez, a managing director of investment firm Drexel Burnham Lambert.
Analysts said bond prices were pressured by the dollar’s decline Thursday against key currencies.
A weak U.S. currency makes dollar-denominated assets such as bonds and notes less attractive to foreign investors.
In addition, bond investors are concerned about the market’s ability to absorb about $80 billion in new Treasury issues scheduled to come to market in the near future now that President Reagan has signed the Gramm-Rudman deficit-reduction bill into law.
Analysts said bond prices did not respond to Commerce Department reports on construction spending and factory orders reports for August.
The department said construction spending shot up 1.6%, the biggest increase in four months, while factory orders fell 1.7%, the first decline in seven months.
The market also was unmoved by the news that the nation’s basic money supply rose by $5.4 billion during the third week of September, traders said.
In the secondary market for Treasury issues, prices of short-term government issues declined 3/32 point to 1/8 point, intermediate maturities lost 5/32 point to 11/32 point, and 20-year issues fell 5/16 point, according to the investment firm Salomon Bros.
The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.
Yields on three-month Treasury bills, meanwhile, rose 7 basis points to 6.65%, six-month bills slipped 1 basis point to 6.81% and one-year bills jumped 15 basis points to 7.40%. A basis point is one-hundredth of a percentage point.
The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 7.75%, up from 7.50% on Wednesday.
The Federal Reserve reported problems on Wednesday and Thursday with its fed funds wire, which banks use to make transfers of federal funds reserves and other payments. Because of the problem, the clearance of fed funds transfers was delayed. Wednesday trading was extended until 3:45 a.m. Thursday and Thursday’s trading also was affected, accounting for some of the increase in the fed funds rate.
In corporate trading, industrials declined point and utilities eased 1/8 point in light trading, according to Salomon Bros.
Among tax-exempt municipal bonds, general obligations and revenue bonds lost point in light activity, Salomon Bros. said.
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