CREDIT : New Inflation Jitters Sink Bond Prices
Bond prices tumbled Monday as a sharp rise in oil and other commodity prices reignited fears of inflation.
The Treasury’s bellwether 30-year bond fell 31/32 point, or nearly $10 for $1,000 face amount, as its yield rose to 8.77% from 8.68% late Friday.
Analysts traced the bond market’s selloff to renewed concerns about inflation, which erodes the value of fixed-income investments and increases chances that the Federal Reserve may nudge interest rates higher.
Those concerns deepened as oil prices leaped to the highest level of the year. On the New York Mercantile Exchange, the price of West Texas Intermediate crude oil jumped $1.01 per 42-gallon barrel to $17.89.
Commodity prices also climbed, pushing the Commodity Research Bureau’s index of a basket of commodity prices up 1.27 to 235.96.
“The factors that had been benign for inflation are now shifting,” said David Hale, chief economist for Kemper Financial Services in Chicago.
Hale said the bond selloff may also reflect some profit taking after a rally Friday as well as some concerns about the February trade deficit figure, which is scheduled for release later this week.
In the secondary market for Treasury bonds, prices of short-term governments fell 1/8 point, intermediate maturities fell by between 10/32 point and 5/8 point and 20-year issues fell 3/4 point, according to figures provided by the financial information service 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 0.43 to 111.50. The Shearson Lehman composite index, which makes a similar measurement, fell 4.73 to 1,166.22.
In corporate trading, industrials and utilities fell point in light trading, according to the investment firm Salomon Bros.
Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, fell 0.500 to 281.43.
Yields on three-month Treasury bills were up 1 basis point at 6.02%. Six-month bills rose 3 basis points to 6.19% and one-year bills rose 1 basis point to 6.51%. A basis point is one-hundredth of a percentage point.
The federal funds rate, the interest on overnight loans between banks, traded at 6.75%, unchanged from late Friday.
In the tax-exempt market, the Bond Buyers municipal bond index, which measures price changes on 40 long-term bonds, fell to 88 12/32 from 88 23/32 late Friday as its yield to maturity rose to 8.12% from 8.09%.
