CREDIT : Sagging Dollar, Rising Commodity Prices Sink Bonds
Bond prices fell Wednesday in quiet trading, sagging under the weight of a declining dollar and sharply higher commodity prices.
The decline was deepest in longer-term issues. The Treasury’s closely watched 30-year bond dropped 1 points, or $12.50 per $1,000 in face value.
The yield on the 30-year issue, which moves inversely to its price and is often an indicator of interest rate trends, soared to 8.98% from 8.87% late Tuesday.
“The market is very uncertain right now,” said Marshall Front, an economist at the investment firm Stein Roe & Farnham in Chicago.
Front said bond prices were hurt by the dollar’s decline on world currency markets and by a brisk rise in prices for soybeans and other agricultural commodities sparked by new drought fears. Oil prices also rose.
Both a weaker U.S. currency and higher commodity prices heighten concern among bond investors of higher inflation, which erodes the value of fixed-income securities. A weaker dollar also makes dollar-denominated bonds and notes less attractive to foreign investors.
“The softer dollar prompted some profit taking in bonds,” said William V. Sullivan, director of money market research for Dean Witter Reynolds Inc. Bond prices had risen before the recent Independence Day holiday when the dollar was stronger.
In the secondary market for Treasury bonds, prices of short-term government issues declined 1/8 point to point, intermediate maturities lost 13/32 point to 23/32 point and 20-year issues fell nearly a point, 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 Shearson Lehman Hutton daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, stood late in the day at 1,146.81, down 5.30.
Yields on three-month Treasury bills, meanwhile, fell 4 basis points to 6.52%. Six-month bills declined 3 basis points to 6.67%, while one-year bills rose 3 basis points to 7.05%. 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 7.563%, down from 7.75% on Tuesday.
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