CREDIT : Bond Prices Dip as Interest Rates Rise in Calm Session
Interest rates crept higher Thursday as prices of bonds declined slightly in quiet, uneventful trading following a sharp dollar-led rebound in the previous session.
The Treasury’s 30-year bond closed down nearly point, or $2.50 per $1,000 face amount. Its yield, which moves inversely to its price, rose to 8.77% from 8.75%.
On Wednesday, the bellwether issue had jumped about $10 in value due largely to the dollar’s strength in foreign exchange. That was prompted by a report the seven major industrialized nations, known as the Group of Seven, would seek to stabilize the U.S. currency at a meeting next week.
The dollar turned modestly lower Thursday after rising overseas.
“I think it was encouraging today that the dollar did not (greatly) retrace the gains it made yesterday,” said Jay Goldinger, a principal in the Beverly Hills investment banking firm Capital Insight Inc.
The dollar is closely watched by the credit markets as a sign of where inflation might be headed. A falling dollar raises the prospect of import-led inflation as well as the possibility that foreign investors may not expand dollar-denominated holdings.
Goldinger said investors were reluctant to take any major provision in advance of Thursday’s release of the February merchandise trade deficit report. “Traders are trying to get flat and even,” he said. “This was welcome respite today for bond traders.”
In the secondary market for Treasury bonds, prices of short-term and intermediate governments fell between 1/32 point and 1/16 point and long-term issues were 3/32 point to 7/32 point lower, according to figures provided by 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.
The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 0.07 to 111.47. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, stood at 1,066.29, down 0.56.
In corporate trading, industrials and utilities were unchanged in light trading, according to the investment firm of Salomon Bros.
In the tax-exempt market, the bond buyer index of 40 actively traded municipal bonds was up 6/32 point at 88 5/32. The average yield fell to 8.14% from 8.17% on Wednesday.
Yields on three-month Treasury bills were up 1 basis point to 6.04%. Six-month bills rose 3 basis points to 6.18% and one-year bills were up 3 basis points at 6.57%. A basis point is one-hundredth of a percentage point.
The federal funds rate, the interest on overnight loans between banks, traded at 6.875%, down from late Wednesday’s 7.25%, a level achieved due to technical factors.
