CREDIT : Bond Prices Drop on Report of Rise in Retail Sales
Bond prices finished lower Thursday on the heels of a government report showing better than expected January retail sales and amid heightened concern over a coming trade report.
The Treasury’s bellwether 30-year issue, which on Wednesday gained nearly 1/2 point, fell 19/32 point, or about $6.25 per $1,000 in face value. Its yield, which moves inversely to its price, rose to 8.35% from 8.30%.
The Commerce Department reported that retail sales climbed a seasonally adjusted 0.5% in January, boosted by the strength of car sales. It was the third consecutive monthly gain and countered economists’ predictions of weaker sales.
A separate Labor Department report showing a drop in initial claims for unemployment insurance during the last week in January also worked to depress bond prices.
The data “definitely (are) not showing a recession,” said Mitchell Held, chief financial economist at the investment firm Smith Barney, Harris, Upham & Co.
The 30-year bond was off more than a point after the reports were released but then recovered throughout most of the day based on “conjecture” over the size of December’s merchandise trade deficit, due to be reported today, said John Sebastian, an executive vice president at Clayton Brown & Associates in Chicago.
Analysts agree that market participants are nervous about the report. Forecasts range from an $11.5-billion deficit to a much larger $15-billion shortfall for the month, with the consensus at $13.5 billion.
“A lower deficit would imply that dollar has bottomed out against other currencies, and if the Federal Reserve doesn’t have to worry about dollar, it can afford to be more accommodative” in terms of lowering interest rates, Sebastian said.
In the secondary market for Treasury bonds, prices of short-term governments fell between 1/16 point to 5/32 point, intermediate maturities were 5/32 point to 13/32 point lower, and 20-year issues were down 19/32 point, according to figures provided by the financial information service Telerate Inc.
The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.
Revenue Bonds Down
The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 0.29 to 113.84. The Shearson Lehman daily Treasury bond Index, which makes a similar measurement, lost 2.73 to 1,190.64.
In corporate trading, industrials and utilities dropped 1/2 point in moderate trading, according to the investment firm of Salomon Bros.
Among tax-exempt municipal bonds, general obligations fell 1/2 point and revenue bonds were down 3/8 point. Trading was light, according to Merrill Lynch & Co.
Yields on three-month Treasury bills were up 5 basis points to 5.63%. Six-month bills rose 8 basis points to 5.91% and one-year bills gained 8 basis points at 6.17%. A basis point is one-hundredth of a percentage point.
The federal funds rate, the interest on overnight loans between banks, rose to 6.50% from 6.25% on Wednesday.
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