CREDIT : Inflation Fears Push Bond Prices Lower
Bond prices inched lower Monday amid speculation that the Federal Reserve may tighten credit to slow the economy’s expansion.
The Treasury’s 30-year bond slipped 1/8 point, or $1.25 per $1,000 in face value, while its yield rose to 9.11% from 9.10% Friday.
The government provided more evidence Monday that the economy is expanding at a brisk pace. It said construction spending shot up 1.5% in March as orders to U.S. factories for manufactured goods climbed 1.6%.
Many analysts also expect strong job growth will be evident in the April unemployment report that is due to be released on Friday.
Federal Funds Rate Down
“There is fear that the economy is gathering momentum and inflation is also gathering momentum,” said Elliott Platt, research director for Donaldson, Lufkin & Jenrette Securities. Overly rapid economic expansion could prompt the Fed to push interest rates higher in an effort to head off inflation, sending bond prices lower.
In the secondary market for Treasury bonds, prices of short-term governments edged down 1/32 point, intermediate maturities fell 2/32 point and 20-year issues fell 13/32 point, according to the financial information service Telerate Inc.
Yields on three-month Treasury bills rose 9 basis points to 6.08%. Six-month bills rose 9 basis points to 6.44% and one-year bills rose 4 basis points to 6.71%.
The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 0.28 to 109.96.
In the corporate market, industrials and utilities each fell 1/8 point in light activity, according to the investment firm Salomon Bros.
In the tax-exempt market, municipal and revenue bond prices were off about point.
The federal funds rate, the interest on overnight loans between banks, fell to 6.813% from 7% Friday.