CREDIT : Slide in Oil Prices Drives Bonds Higher
Bond prices were driven higher Monday in dull activity as investors focused on plunging oil prices.
The Treasury’s bellwether 30-year issue was up 29/32 point, or nearly $9 for every $1,000 in face value. Its yield fell to 9.37% from 9.45% late Friday.
On the New York Mercantile Exchange, the price for January delivery of West Texas Intermediate crude oil fell 87 cents a barrel to $17.44.
Oil ministers of the 13-nation Organization of Petroleum Exporting Countries, meeting in Vienna, were preparing to extend their current agreement, under which prices have declined because the cartel has not kept production levels within self-imposed quotas.
Lower Inflation
Analysts said the agreement would actually do little or nothing to tighten oil supplies and keep prices steady.
“People have sort of seized on the oil price drop,” said Robert Brusca, chief economist and senior vice president of fixed income at Nikko Securities Co.
Declining oil prices tend to be a harbinger of lower inflation, and bond traders believe that lower inflation portends lower interest rates and higher bond prices.
The drop in oil prices “is good for bonds--it takes some of the inflation sting out of the market,” Brusca said.
But Anthony Naylor, senior vice president of fixed income at Rodman & Renshaw, said that despite the boost bond prices received from the drop in oil prices, the market’s overriding concern is with the weakening dollar.
“We will get to a point where the Japanese will stop buying U.S. bonds,” he said. “And we’re closer to that today than we were yesterday.”
The dollar continued to slip against most major world currencies, but the losses were slight in quiet, cautious trading. A lower dollar is a signal of potential higher inflation.
Indexes Up
In the secondary market for Treasury bonds, prices of short-term governments rose 1/16 point to 1/8 point; intermediate maturities ranged 3/16 point to 21/32 point higher, and 20-year issues were up 3/4 point, according to Telerate Inc., a financial information service.
The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, rose 0.30 to 108.61. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, rose 2.58 to 1,136.64.
Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, rose 0.13 to 260.45.
Yields on three-month Treasury bills were unchanged at 5.89%. Six-month bills were up 1 basis point at 6.49% and one-year bills were down 1 basis point at 6.80%.
The federal funds rate, the interest on overnight loans between banks, traded at 6.688%, down from 6.75% late Friday.
