CREDIT : Bond Prices Rise as Fears of Inflation Ease
Bond prices scored some of their biggest gains of the year Wednesday in active trading, lifted by a wave of new-found confidence about the inflation outlook and by strong technical factors.
The advance marked the second straight day of a rally inspired by the waning of traders’ fears of reignited inflation. The Treasury’s closely watched 30-year bond jumped about 1.5 points, or $15 for every $1,000 in face value. Its yield, which moves inversely to its price, dropped to 9.09% from 9.23% late Tuesday.
“The market really popped up,” said John Sebastian, executive vice president of Clayton Brown & Associates, an investment firm based in Chicago.
Analysts said bond prices have been boosted this week by traders’ growing confidence about the near-term outlook for inflation.
“I think the tone in the market is a bit better,” said Maria Ramirez, a managing director of Drexel Burnham Lambert Inc.
The government’s report Wednesday that its chief forecasting gauge of economic activity rose only a moderate 0.2% in April reinforced the market’s perception that inflation could be held at bay, Ramirez said.
In addition, analysts said, many traders purchased bonds to cover their short positions--after having sold them last week in anticipation of lower prices.
“It was a strong technical environment,” said William Sullivan, director of money market research for Dean Witter Reynolds Inc. in New York.
Indicators Rise
In the secondary market for Treasury bonds, prices of short-term government issues rose 7/32 point to 7/16 point, intermediate maturities advanced 5/8 point to nearly a full point, and long-term issues jumped about 1 1/2 points, according to figures provided by Telerate Inc., a financial 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 0.70 to 109.37. The Shearson Lehman Hutton daily Treasury bond index, which makes a similar measurement, finished at 1,146.16, up 8.42.
Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, rose 2.18 to 278.04.
Yields on three-month Treasury bills, meanwhile, dropped 9 basis points to 6.43%. Six-month bills also fell 9 basis points to 6.73%, and one-year bills declined 5 basis points to 7.04%. A basis point is one-hundredth of a percentage point.
The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 7.5%, down from 7.625% late Tuesday.
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