CREDIT : Bond Prices Turn Higher as Interest Rates Drop
Interest rates headed lower Tuesday and bonds rose in value as traders felt more confident about the near-term inflation outlook.
At the same time, Wall Street’s Dow industrials surged 74.68 points, their sixth-biggest daily advance, in a rally that began on speculation that U.S. interest rates had peaked and then fed on its own surprising momentum.
The Treasury’s bellwether 30-year bond closed up about 5/8 point, or $6.25 per $1,000 face amount, while its yield slipped to 9.23% from 9.31% late Friday.
The markets were closed Monday in observance of Memorial Day.
“The bond market was better because perception began to surface regarding some slowdown in the economy, which might materialize over the next few months,” said Marshall B. Front, an economist at the Chicago investment firm Stein Roe & Farnham.
He said a recent report showing modest growth in personal income and market expectations that the April report on leading economic indicators, due out today, also would show only a slight increase lessened inflation fears among many investors.
At the same time, however, investors ignored a rise in the Commodity Research Bureau’s index, which measures futures prices and is viewed as a key inflation gauge.
In the secondary market for Treasury bonds, prices of short-term governments rose about 1/8 point, intermediate maturities were up between 3/16 point and 9/32 point and long-term issues ranged from 1/2 point to 15/16 point higher, according to figures provided by Telerate Inc., a business information service.
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, rose 0.22 to 108.57. The Shearson Lehman Hutton daily Treasury bond index, which makes a similar measurement, stood at 1,137.74, up 3.77.
In corporate trading, industrials and utilities gained about 1/2 point in active 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, rose 0.81 to 275.86.
In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds was up 1/8 point at 87 9/32 as of 3 p.m. EDT. The average yield fell to 8.20% from 8.21% late Friday.
Yields on three-month Treasury bills were down 2 basis points to 6.41%. The federal funds rate, the interest on overnight loans between banks, traded at 7.725%, up from 7.25% late Friday.
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