CREDIT : Drop in Commodity Prices Rallies the Bond Market
Bonds rose late Thursday and interest rates eased in what traders called a reaction to a decline in commodity prices and the consequent suggestion of lower inflation.
The key 30-year Treasury issue rose about $3.75 per $1,000 in face amount. Its yield, which moves inversely to price, fell to 8.44% from 8.46% on Wednesday.
After remaining largely unchanged throughout the morning session, bonds rallied in response to falling prices in the commodities markets. The Commodity Research Bureau index, considered a key indicator of impending inflation, fell more than two points.
The bond market is sensitive to commodity price trends because higher inflation erodes the value of fixed-income investments. Conversely, lower inflation makes bonds more attractive.
Government reports that indicated high factory use in January and a fall in the money supply had no effect on bond prices, traders said.
In the secondary market for Treasury bonds, prices of short-term governments rose about 1/8 point; intermediate maturities rose about point, and long-term issues were up about 3/8 point, according to Telerate Inc., a financial information service.
The movement of a point equals a change of $10 in the price of a bond with a $1,000 face value.
The Shearson Lehman daily Treasury bond index, which measures movements on Treasury bonds with maturities of at least one year, rose 1.69 to 1,184.32.
In corporate trading, industrials rose point and utilities rose 1/8 point in light trading.
Among tax-exempt municipal bonds, general obligations and revenue bonds both rose about 5/8 point in moderate trading.
Yields on three-month Treasury bills fell 5 basis points to 5.68%. Six-month bills rose 1 basis point to 5.99% and one-year bills fell 4 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, traded at 6.675%, unchanged from Wednesday.
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