CREDIT : Bond Prices Fall a Bit on News of Higher Employment Levels
Bond prices fell modestly Monday in light trading as the dollar drifted lower and a key commodity price index edged higher.
The Treasury’s 30-year bond fell 3/8 point, or $3.75 for every $1,000 in face value, while its yield rose to 8.51% from 8.47% late Friday.
The bellwether issue had plunged $20 per $1,000 in face amount Friday, after the government reported unexpectedly high February employment levels, raising doubts about forecasts of an economic slowdown later this year.
David Hale, economist for Kemper Financial Services in Chicago, said the report prompted some investment firms to raise their economic growth forecasts. Faster growth is generally viewed negatively in the bond market because credit demands increase when the economy expands, pushing interest rates up.
Sung Won Sohn, chief economist for Norwest Corp. in Minneapolis, said the bond market was also hurt by a new decline in the dollar and a slight rise in the Commodity Research Bureau index, mainly due to higher meat prices.
A falling dollar reduces the yields available to foreign investors on dollar-denominated investments. It also raises pressure on domestic producers to keep prices low to compete with foreign products.
Meanwhile, interest rates rose from last week on short-term Treasury securities sold in the government’s latest auction.
The Treasury Department sold $6.4 billion in three-month bills at an average discount rate of 5.74%, up from 5.62% last week. Another $6.4 billion was sold in six-month bills at an average discount rate of 5.93%, up from 5.86% last week.
The rates for three-month bills were the highest since Feb. 1 when they sold for 5.74%. Three-month bills sold for 5.85% on Jan. 25. The rates for six-month bills were the highest since Feb. 16 when they averaged 6.03%.
Yields on three-month Treasury bills rose 2 basis points to 5.72%.
The federal funds rate, the interest on overnight loans between banks, traded at 6.675%, up from 6.50% late Friday.
