CREDIT : Bonds End Little Changed After Gains Early in Day
Bond prices finished little changed Tuesday, as a fresh rise in commodities futures prices offset a better-than-expected report on consumer prices for May.
The Treasury’s closely watched 30-year bond edged up 1/32 point, or less than $1 for every $1,000 in face amount, as its yield held steady at 9.08%, the same as late Monday.
Early in the session, bond prices rose after the Labor Department said consumer prices rose a moderate 0.3% in May.
But those gains were later eroded as another drought-related jump in soybean, corn and oat futures prices pushed a key commodity price index higher.
Harold Nathan, senior financial economist at Wells Fargo & Co., said the market reflected “a lack of enthusiasm.”
He said the consumer price rise in May failed to reflect the increasing inflation pressures caused by a continuing lack of rain in the Midwest during a critical phase of the growing season.
“The report was fine for one month, but it provides only sketchy evidence on the outlook for inflation,” Nathan said.
Bond traders tend to sell when inflation appears on the rise because it erodes the value of fixed-income securities such as bonds.
In addition, the Federal Reserve is less likely to push interest rates lower during inflationary periods. Higher rates would reduce the value of outstanding debt securities.
In the secondary market for Treasury bonds, prices of short-term government issues slipped 1/32 point, intermediate maturities fell 1/8 point and 20-year issues were down 5/32 point, according to figures provided by 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 0.08 to 109.21. The Shearson Lehman Hutton daily Treasury bond index, which makes a similar measurement, fell 0.58 to 1,143.13.
Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, rose 0.15 to 280.98.
Yields on three-month Treasury bills rose 6 basis points to 6.56%. Six-month bills rose 5 basis points to 6.87% and one-year bills rose 3 basis points to 7.08%. 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 7.4375%, down from 7.5625% late Monday.
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