FINANCIAL MARKETS : Credit : Bond Prices Rally After Dollar Stages Turnaround
Bond prices recovered in late trading Friday, inspired by the dollar’s turnaround against other major currencies.
The Treasury’s closely watched 30-year issue rose about 7/8 point, or $8.75 per every $1,000 in face value. Its yield, which moves inversely to its price, dropped to 9.68% from 9.77% late Thursday.
Corporate and municipal bonds were unchanged to 1/2 point higher.
Bond prices fell earlier in the day as investors worried about a surge in oil prices, which could indicate a refueling of inflation, a key enemy of the credit markets. Futures contracts for November delivery of West Texas Intermediate, the U.S. benchmark crude oil, jumped 24 cents per 42-gallon barrel to close at $19.86 on the New York Mercantile Exchange.
But bonds rallied in late trading following the dollar’s lead, analysts said. Currency dealers said the dollar drew some support from unfounded reports that Iran was preparing to declare war on the United States.
Despite the recovery, analysts cautioned, the bond market continues to struggle under the weight of concern about rekindled inflation, underlying weakness in the dollar and the influx into the market of about $80 billion in new government bonds in the near future.
“It is just a general malaise,” said Marshall Front, an economist at Stein Roe & Farnham, a Chicago investment firm. “There’s not a great impetus for people to lean against the wind.”
Mitchell Held, chief financial economist for investment firm Smith Barney, Harris Upham & Co., concurred. “I think there’s some general nervousness out there,” he said.
In the secondary market for Treasury issues, prices of short-term government issues rose 1/16 point to 5/32 point, intermediate maturities advanced 3/16 point to 1/2 point and 20-year issues gained 13/16 point to 27/32 point, according to Telerate Inc.
The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 7.375%, down from 7.75% late Thursday.
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