CREDIT : Bonds Rally Despite New Drop in Dollar
Despite another drop in the dollar’s value, bond prices rose Tuesday in a mild rally that some traders attributed to supply hoarding prior to the three-day New Year’s weekend.
The Treasury’s key 30-year bond rose about 3/4 point, or $7.50 per $1,000 in face amount, recouping the loss sustained Monday. The bond’s yield, which moves inversely to price, fell to 8.92% from 8.98% late Monday.
Corporate and municipal bond prices also rose, and short-term interest rates declined slightly.
Traders were surprised by the rally, since it accompanied a further erosion of the dollar’s value in foreign exchange trading. A decline in the U.S. currency on Monday depressed bond prices, since it implies higher inflation and a consequent drop in the value of dollar-denominated securities.
Some dealers were buying bonds to ensure adequate supplies when the market reopens after the long New Year’s weekend, which apparently buoyed prices.
Others said the market rebounded in a reaction to the sharp decline of Monday, which also afflicted stock prices. Some investors funneled money from the sale of stocks into the relative security of the bond market.
In the secondary market for Treasury bonds, prices of short-term governments rose point, intermediate maturities rose 5/8 point and long-term issues rose 3/4 point, Salomon Bros. said.
The movement of a point equals a change of $10 in the price of a bond with a $1,000 face value.
The federal funds rate, the interest on overnight loans between banks, traded at 6.75%, down from 7.375% late Monday.
The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, rose 0.40 to 110.53.
In corporate trading, industrials and utilities rose about 1/2 point in light dealings.
Among tax-exempt municipal bonds, general obligations and dollar bonds rose about 1/2 point in light to moderate dealings, traders at Chicago-based Clayton Brown & Associates reported.
Yields on three-month Treasury bills were unchanged at 5.73%. Six-month bills fell 4 basis points to 6.28%, and year bills fell 5 basis points to 6.68%.
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