CREDIT : Bond Market Retreats in Light Trading
Bond prices slipped Friday, but a mild afternoon rally left them above their lows for the session.
Credit markets were being buffeted by rapidly shifting expectations on whether the Federal Reserve Board would relax its credit policy and whether Congress and the White House could agree on a budget deficit reduction plan.
The Treasury’s bellwether 30-year bond finished down 5/8 point, or about $6.25 for every $1,000 in face value. Its yield rose to 8.84% from 8.77% late Thursday. It had finished the previous week just above 9%.
The federal funds rate, the interest banks charge each other on overnight loans, was quoted at 6.675%, unchanged from late Thursday.
Bond prices opened sharply lower in what analysts attributed to stronger-than-expected employment growth in October and a bout of profit-taking.
The Labor Department reported that non-farm payrolls rose by a larger-than-expected 549,000 in October even as the unemployment rate inched up.
Elliott Platt, fixed-income research director for Donaldson Lufkin & Jenrette, said some traders felt the growth in employment diminished chances that the Federal Reserve Board would relax its credit policy, possibly by lowering its discount rate or the interest charged on loans to financial institutions.
Platt also said bond prices were depressed by traders taking profits on the market’s advances earlier in the week.
But bond prices bounced back in the afternoon, retracing about half of the day’s declines as congressional negotiators took new steps toward developing a deficit reduction plan, according to Maria Ramirez, an economist for Drexel Burnham Lambert.
Republican budget negotiators presented President Reagan with a joint proposal to cut the federal deficit by $30 billion in fiscal 1988 and $45.5 billion in 1989, and urged him to consider Social Security cuts as part of the package.
Ramirez said that the afternoon’s advances came in light dealings, however, and that many traders called it a day at noontime.
In late afternoon, the Federal Reserve released minutes of its September policy-making meeting at which it tightened up on credit conditions in the weeks before the big stock market dive.
The minutes also revealed that the Federal Reserve, concerned about the shock to the economy from the stock price plunge, held daily telephone meetings from Oct. 19 through Oct. 30.
The Fed said policy-makers agreed “on the need for special flexibility in open market operations” during this period.
Analysts remain divided on whether the Fed will carry these concerns further with a general relaxation in credit policy.
In the secondary market for Treasury issues, prices of short-term government issues fell 6/32 point, intermediate maturities were off 3/8 point and 20-year issues fell 7/8 point, according to Telerate, the financial information service.
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 8 basis points to 5.70%, six-month bills rose 5 basis points to 6.09% and one-year bills rose 12 basis points to 6.46%. A basis point is a hundredth of a percentage point.
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