CREDIT : Latest Inflation Reports Lift Bond Prices
Bond prices rose in thin trading Friday, supported partly by indications of continued moderate inflation.
The Treasury’s closely watched 30-year bond rose by nearly 3/4 point, or $7.50 per $1,000 in face value, with its yield declining to 8.36% from 8.42% late Thursday.
Analysts said that after a busy morning session market activity quieted for the rest of the day, with price movements occurring in very thin trading.
Helping to tug prices higher was the Labor Department report that its consumer price index rose 0.3% in January, a pace generally expected by the market, analysts said. The monthly rate translated into a moderate 4.2% annual rate, compared to 4.4% in 1987.
High inflation erodes returns on fixed-income securities such as bonds and reduces their attractiveness as investments.
In addition to the CPI report, the Commodity Research Bureau futures index of 21 commodities fell a sharp 1.42 to 224.26. Many market participants consider the index a reflection of inflationary expectations, with a decline thought to signal lower near-term inflation.
Furthering such sentiments were additional declines in crude oil prices. The April contract for West Texas Intermediate, the benchmark U.S. crude, fell 14 cents to $15.78 per 42-gallon barrel on the New York Mercantile Exchange, its lowest since late December.
Otherwise, analysts said, many market participants were limiting their activity in the absence of major new economic news. Many are waiting for next Friday’s U.S. unemployment report for February before taking major investment positions.
“The economy still seems to be moving at a decent clip, and no one has any strong convictions in either direction to buy or sell, so the market waffles in a narrow trading range,” said Elizabeth Reiners, a vice president of money market research at Dean Witter Reynolds.
In the secondary market for Treasury bonds, prices of short-term governments rose 1/8 point; intermediate maturities rose in the range of 3/16 point to 15/32 point, and 20-year issues rose 1/2 point, according to the investment firm Salomon Bros.
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, rose 0.32 to 113.71. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, rose 3.46 to 1,189.35.
In corporate trading, industrials rose 1/2 point and utilities rose 3/8 point, according to Salomon Bros. Trading was light.
Among tax-exempt municipal bonds, general obligations and revenue bonds were unchanged.
Yields on three-month Treasury bills were down 4 basis points to 5.59%. Six-month bills fell 3 basis points to 5.76% and one-year bills were off 4 basis points to 6.19%.
The federal funds rate, the interest on overnight loans between banks, was quoted at 6.563%, unchanged from Thursday.