CREDIT : Bond Prices Climb After Dropping Early in Session
Bond prices finished higher Wednesday for the first time in a week as the market overcame some early worries about inflation.
The Treasury’s key 30-year bond, which has fallen $25 per $1,000 in face amount since last Thursday, rose point, or about $2.50.
The bond’s yield, which moves inversely to its price and is an important signal of interest rate trends, slipped to 9% from 9.04% late Tuesday. A week ago the bond yielded 8.73%.
Bond prices initially sagged after the Labor Department reported a 0.5% jump in March consumer prices, the biggest increase since January, 1987. The advance was larger than most analysts had expected and it drove bond prices lower because it provided additional evidence that inflation may be accelerating. Bond investors fear inflation because it erodes the value of their holdings.
But bond prices reversed course later in the day and headed higher.
William V. Sullivan Jr., director of money market research for the investment firm Dean Witter Reynolds Inc., said the recent decline in bond prices has been so quick and deep that some traders felt it may have gone too far.
In the secondary market for Treasury bonds, short-term maturities edged up 1/32 point, intermediate maturities were up by between 1/8 point and point and 20-year issues rose 3/8 point, the financial information service Telerate Inc. reported.
The movement of a point equals 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 0.17 to 110.52. The Shearson Lehman Hutton daily Treasury bond index, which makes a similar measurement, rose 1.65 to 1,156.33.
In corporate trading, industrials rose 3/4 point and utilities rose point in moderate dealings.
Among tax-exempt municipal bonds, prices edged down 1/8 point in light trading.
Yields on three-month Treasury bills rose 2 basis points to 5.82%. Six-month bills rose 2 basis points to 6.24% but one-year bills were unchanged at 6.62%. A basis point is one-hundredth of a percentage point.
The federal funds rate, the interest on overnight loans between banks, traded at 7.75%, up from 6.813% on Tuesday.
Sullivan said it was unclear whether the rise in the fed funds rate indicated a tightening of the Federal Reserve’s money policy because Wednesday was the end of a reserve reporting period for banks.
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