CREDIT : Late Profit Taking Snuffs Bond Rally

Bond prices surged ahead Monday but then fell back to finish moderately lower as investors cashed in on profits ahead of the government’s auction of new debt this week.

The Treasury’s closely watched 30-year issue, which had been up more than a point earlier, fell 1/8 point, or $1.25 for every $1,000 in face value. Its yield, which moves inversely to its price, was unchanged at 8.42%.

The long bond staged a robust rally late last week, jumping about $34 per $1,000 between Wednesday and Friday, with its yield reaching lows not seen since last July.

The day got off to a “rip-roaring start,” said John V. Sebastian, an executive vice president with Chicago-based Clayton Brown & Associates. He noted that the bellwether 30-year bond jumped as much as 1 1/16 points early in the session.

The market’s slightly lower finish was attributed to “a little profit taking and maybe some apprehension over the refinancing,” Sebastian said, referring to the Treasury’s planned sale of a total of $27 billion in government notes today, Wednesday and Thursday.

Most analysts agree that bond prices have gotten a boost from traders’ expectations that this week’s big government bond auctions will prove to be a strong lure for both domestic and foreign investors, particularly the Japanese.

“The so-called spread between (the Japanese) yen bond and U.S. Treasury bond is technically in position to favor a good foreign interest in the refunding,” said Anthony Naylor, senior vice president of fixed income at Rodman & Renshaw Inc.

Dollar Gains Helped

He referred to the differences between yields of the two nations’ government bonds. With U.S. yields higher, Treasury issues are believed to be more attractive to the Japanese.

Bonds also got a lift Monday from a broadly strengthened dollar. The dollar rose about 1.4 Japanese yen to finish at 129.375 yen in domestic trading. A stronger dollar means U.S. securities hold their value for foreign investors. Naylor said it was “not surprising” that after such a strong, sustained advance, the bond market should sell off a bit.

In the secondary market for Treasury bonds, prices of short-term government issues were unchanged to 1/16 point lower, intermediate maturities were 1/16 to point lower, while 20-year issues gained 1/16 point, according to Telerate Inc., a 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.

The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 0.16 to 113.28.

Corporate Index Rises

Industrial and utility issues were unchanged in light activity, according to the investment firm Salomon Bros.

Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, edged up 0.72 to 282.35.

Yields on three-month Treasury bills, meanwhile, rose 4 basis points to 5.66%. Six-month bills edged up 6 basis points to 6.07% and one-year bills also rose 3 basis points, to 6.25%. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, was quoted at 6.9375%, up from 6.8125% late Friday.

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