CREDIT : Bond Prices Edge Higher on Economic News
Bond prices barely budged in quiet trading Tuesday after the government released a favorable report on economic growth.
The price of the Treasury’s bellwether 30-year bond was unchanged, while its yield crept up to 9% from 8.99% late Monday.
Bond prices rose modestly after the Commerce Department reported that the economy, as measured by the gross national product, grew at an annual rate of 2.3% in the first three months of the year.
The increase in the GNP was propelled by a strong increase in consumer spending and the biggest surge in business investment in more than four years, the department said.
The GNP figure was in line with market expectations and did not inspire trading, analysts said.
Harbinger of Inflation
“You’ve got a market that waits for data and then it trades for an hour and that’s it,” said Mitchell Held, chief financial economist for the investment firm Smith Barney, Harris Upham & Co.
Volume was very light, Held said.
A rise in commodity prices helped erase the bond market’s gains, he said.
Bond market traders interpret commodity price increases as a harbinger of higher inflation, which erodes the value of bonds and which could move the Federal Reserve Board to tighten credit and interest rates.
When interest rates rise, bond prices fall.
In the secondary market for Treasury bonds, prices of short-term governments ranged from 1/32 point higher to 1/32 point lower, intermediate maturities were down between 1/32 point and 1/8 point and 20-year issues were unchanged, according to 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.
Federal Funds Rate Down
The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 0.01 to 110.61. The Shearson Lehman composite index, which makes a similar measurement, fell 0.06 to 1,157.28.
In corporate bond trading, industrials and utilities were unchanged in light trading, according to the investment firm Salomon Bros.
Yields on three-month Treasury bills fell 2 basis points to 5.89%. Six-month bills slipped 2 basis points to 6.25% and one-year bills declined 4 basis points to 6.55%. A basis point is one-hundredth of a percentage point.
The federal funds rate, the interest on overnight loans between banks, traded at 6.813%, down from 6.875% Monday.
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