CREDIT : Dollar, Inflation Fears Pull Bond Prices Down
Bond prices declined in subdued trading Tuesday on inflation concerns and a weaker dollar before the government’s release of new economic figures Friday.
The Treasury’s bellwether 30-year bond fell 25/32 point, or nearly $8 per $1,000 in face amount. Its yield rose to 9.13% from 9.06% late Monday.
New economic statistics on the U.S. trade deficit, inflation and industrial production are due out Friday.
Investors remained cautious and unwilling to make large commitments before release of the data, said Kevin Flanagan, a money market economist with Dean Witter Reynolds Inc.
The credit markets have responded to trade figures in recent months with wide price swings because of the impact the deficit could have on the dollar.
The dollar has plunged in response to an unexpected widening of the trade gap and soared when it narrowed. Bond investors fear a lower dollar will lead to inflation, credit tightening by the Federal Reserve Board and surging interest rates.
In April, the merchandise trade deficit narrowed to $9.9 billion, its best showing in three years.
Funds Rate Dips
Marshall B. Front, an economist at the Chicago investment and mutual fund management firm of Stein Roe & Farnham, said, “The market was weak today, reflecting continued inflation concerns and the fact that the dollar, which began weakening yesterday, weakened again today.”
Analysts said light trading tended to exaggerate price movements.
In the secondary market for Treasury bonds, prices of short-term governments fell by between 1-16 point and 5/32 point, intermediate maturities ranged from point to 15/32 point lower and 20-year issues fell 17/32 point, according to the financial information service Telerate Inc.
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, fell 0.22 to 108.78. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, fell 3.44 to 1,138.32.
In corporate trading, industrials fell 1/2 point and utilities fell 3/8 point in active dealings, according to Salomon Bros.
Three-month Treasury bills rose 4 basis points to a discount rate of 6.75%. Six-month bills rose 1 basis point to a discount rate of 6.97%, while one-year bills increased 1 basis point to a discount rate of 7.24%. A basis point is one-hundredth of a percentage point.
The federal funds rate, the interest on overnight loans between banks, traded at 7.375%, down from 7.563% late Monday.
Tables, Page 15
