CREDIT : Bonds Gain but Close Below Day’s Highs
Bond prices inched ahead Monday but finished below the day’s highs as commodity prices turned higher.
The price of the Treasury’s closely watched 30-year bond rose point, or $2.50 for every $1,000 in face value. Its yield slipped to 8.34% from 8.36% Friday.
Elliott Platt, research director for Donaldson Lufkin & Jenrette Securities, said the bond market rallied early in the day as gold prices fell sharply in Europe, indicating a brighter outlook for continued low inflation.
The direction of gold prices is often considered an indication of where inflation may be headed. Investors often buy gold as a hedge against inflation.
But gold prices later reversed course in New York, rising along with prices of several other major commodities such as platinum and copper.
Sung Won Sohn, chief economist for Norwest Corp. in Minneapolis, said bond prices then pulled back because traders are mindful of remarks last week by Manuel Johnson, vice chairman of the Federal Reserve Board, who said the central bank “is watching commodity prices” in setting monetary policy.
The market was also awaiting some economic reports due later this week.
The government plans to report today on changes in its main forecasting gauge, the index of leading indicators. The index has fallen for three straight months, and many analysts expect another decline for January.
On Friday, the government will report on unemployment in February. Platt said some economists anticipate an acceleration in payroll growth from the increase of 107,000 reported for January.
In the secondary market for Treasury bonds, prices of short-term governments rose 2/32 point, intermediate maturities rose by 3/32 point and 20-year issues were up point, according to Telerate, a financial data service.
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 0.12 to 113.83. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, rose 0.68 to 1,190.03.
In corporate trading, industrials and utilities rose point in light activity, the investment firm Salomon Bros. said.
Yields on three-month Treasury bills rose 2 basis points to 5.61%. Six-month bills rose 3 basis points to 5.79%, and one-year bills slipped 1 basis point to 6.19%. 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%, up from 6.563% Friday.
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