CREDIT : Bonds Decline in Reaction to Jobless Data
Bond prices fell sharply Thursday after the government released an unemployment report indicating strength in the economy.
The Treasury’s 30-year bond fell 27/32 point, or more than $8.50 per $1,000 in face value, while its yield jumped to 9.10% from 9.02% late Wednesday.
Analysts said bond prices fell in reaction to a report that showed initial claims for state unemployment insurance were sharply lower during the week ended April 16.
“The bond market got a severe case of indigestion in the morning right after the unemployment report,” said Robert Brusca, chief economist with Nikko Securities Co. International.
‘It suggests a strong economy,” Brusca said of the report.
The figures also indicate a strong report on non-farm payroll when the Labor Department issues its monthly unemployment statistics next week, Brusca said.
Signs of economic strength are bearish for bonds because the Federal Reserve Board is less likely to ease credit--nudging interest rates lower in the process--when the economy is healthy.
Indexes Down
Interest rates and bond prices move in opposite directions, so a loosening of credit would move bond prices higher.
Brusca said traders also were nervous in anticipation of next month’s quarterly Treasury refunding auction, which will be an indication of the demand among foreigners for U.S. investments.
In the secondary market for Treasury bonds, prices of short-term governments were 3/16 point lower, intermediate maturities were down between point and 7/16 point and 20-year issues were off 3/8 point, 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.
The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 0.44 to 110.10. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, fell 4.45 to 1,152.16.
Tax-Exempt Bonds Slip
Among corporate issues, industrials were off 1/2 point and utilities were down 3/8 point in very 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 0.83 to 278.35.
Tax-exempt municipal bonds fell 5/32 point.
Yields on three-month Treasury bills rose 11 basis points to 5.99%. Six-month bills rose 11 basis points to 6.34% and one-year bills rose 7 basis points to 6.64%. A basis point is one-hundredth of a percentage point.
The federal funds rate, the interest on overnight loans between banks, rose to 7.063% from 7% late Wednesday.
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