A selloff in stocks helped boost interest in the credit markets Wednesday, as short-term rates tumbled and most bonds rose in value. Bonds prices started out virtually unchanged and rose and fell throughout the session in reaction to the dollar's activities overseas and the stock market.
"It was one big tug of war," said Jay Goldinger, an investment banker with Cantor, Fitzgerald & Co. of Beverly Hills. "The tone of the bond market tomorrow and the next day will probably be on the dollar and the stock market.
"There's not much else going on," he said.
The stock market tumbled to an early 1988 low Wednesday, with the Dow Jones index of 30 industrials losing 57.20 to 1,879.14. The dollar also finished lower against most major currencies.
Investors often see the credit markets, particularly Treasury bills, as a safe haven when the stock market posts huge losses. But a weak dollar often hurts bond prices because it raises the possibility of higher inflation and makes dollar-denominated securities less attractive to foreigners.
The Treasury's bellwether 30-year bond, which on Tuesday lost about 3/8 point, or $3.75 per $1,000 face amount, gained nearly $1.25. Its yield, which moves inversely to its price, fell to 8.77% from 8.80%.
The government said Wednesday that consumer prices, a measure of inflation, rose 0.1% in December and that housing starts plunged 16.2% that month.
In the secondary market for Treasury bonds, prices of short-term governments were up 3/32 point; intermediate maturities ranged from 3/32 point to 3/16 point higher, and 20-year issues were up about 1/2 point, according to Telerate Inc.
The movement of a point is equivalent to a change of $10 in the price of a $1,000 bond.
The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, rose 0.18 to 111.60. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, gained 2.35 to 1,167.32.
In corporate trading, industrials and utilities rose point in light trading, according to the investment firm of Salomon Bros. Inc.
T-Bill Yields Dive
Among tax-exempt municipal bonds, general obligations rose about 1/2 point and revenue bonds were up between 5/8 point and 3/4 point, said the securities firm Merrill Lynch & Co. Trading was quiet.
Yields on three-month Treasury bills were tumbled 18 basis points to 5.79%. Six-month bills plunged 13 basis points to 6.23%, and one-year bills were off 7 basis points at 6.46%.
A basis point is one-hundredth of a percentage point.
The federal funds rate, the interest on overnight loans between banks, traded at 6.75%, down from 6.875% Tuesday.
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