CREDIT : Bond Prices Get Big Push From Fall in Commodities
Bond prices rose strongly Wednesday, as a new wave of optimism backed by several new developments swept the market.
The Treasury’s bellwether 30-year bond was up more than a full point, or about $10 per $1,000 in face value. The bond’s yield fell to 9.01% from 9.11% late Tuesday.
The gain sharply reversed broad losses Tuesday, when negative economic factors, including higher commodities prices, fed investor pessimism.
Elliott Platt, an economist at the Donaldson Lufkin & Jenrette Inc. securities firm, said several factors drove Wednesday’s prices higher in what was “one of the best days in a long time.”
Foremost, he said, was a sharp drop in many commodities, including soybeans, cotton, grains and precious metals.
Reports of long-overdue rain in western and southern Iowa sent grain and soybeans futures plunging. The declines heartened the bond market because they eased the threat of inflation, Platt and other analysts said.
Inflation erodes the value of fixed-income investments and tends to lead to higher interest rates, both of which are bad for bonds.
Platt noted that the dollar put in a strong performance as the day went on, bolstered by a remark by Federal Reserve Board Chairman Alan Greenspan that further declines by the dollar would hurt, not help, the U.S. trade deficit.
Secondary Rates Higher
A stronger dollar encourages investment in U.S. securities by foreigners.
In the secondary market for Treasury bonds, prices of short-term governments rose 7/32 point, intermediate maturities rose 3/4 point and 20-year issues were up 30/32 point, according to the investment firm of Salomon Bros.
The movement of a point is equivalent to a change of $10 in the price of a $1,000 bond.
The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, rose 0.47 to 109.87. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, rose 4.51 to 1,149.81.
In corporate trading, industrials and utilities rose 3/4 point in very active trading.
Among tax-exempt municipal bonds, general obligations and revenue bonds were up 1/2 point. Trading was moderate.
In the tax-exempt market, the bond buyer index of 40 actively traded municipal bonds was up 11/32 point at 88 12/32 as of 3 p.m. The average yield fell to 8.09% from 8.12% late Tuesday.
Yields on three-month Treasury bills were down 3 basis points to 6.39%. Six-month bills fell 8 basis points to 6.62% and one-year bills were off 10 basis points at 6.92%. A basis point is one-hundredth of a percentage point.
The federal funds rate, the interest on overnight loans between banks, traded at 7.25%, down from 7.313% late Tuesday.
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