CREDIT : Bond Prices Caught in Tow of Dollar’s Decline
Bond prices fell in quiet trading Thursday on the heels of a lower dollar.
The Treasury’s closely watched 30-year bond fell 9/32 point, or about $2.50 for every $1,000 in face amount. Its yield--often an indicator of interest rate trends--rose to 9.25% from 9.22% Wednesday.
Analysts said bond prices dropped on the opening after an unidentified Bank of Japan official said there was room for the dollar to decline further. The comment, circulated earlier in overseas trading, helped push the U.S. currency lower.
A depreciation of the dollar erodes the value of dollar-denominated investments such as bonds and tends to drive foreign investors away from the credit market.
“There’s no question that the dollar did it,” said Jay Goldinger, an investment analyst at Capital Insight Inc. in Beverly Hills, in explaining the drop in bond prices.
Despite the initial decline, however, bonds finished above their lows of the day. “It was a reasonably good performance considering the dollar was so weak,” Goldinger said.
Trading was quiet throughout the session. “There just doesn’t seem to be too much interest in the market,” said Anthony Naylor, a senior vice president at Rodman & Renshaw Inc.
Market participants said today’s government report on the consumer price index for June could breathe some life into the market if it indicates that inflation is on the rise.
In the secondary market for Treasury bonds, prices of short-term government issues were down 1/8 point to 5/32 point, intermediate maturities declined 3/16 point to 5/16 point and 20-year issues fell 9/32 point, according to Telerate Inc., a business information service.
The movement of a point is equivalent to a change of $10 in the price of a $1,000 bond.
The Shearson Lehman daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, was down 1.82 at 1,135.17.
Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, slipped 0.23 to 281.55.
In the tax-exempt market, prices slipped nearly 1/8 point, according to the Bond Buyer municipal bond index.
Three-month Treasury bills, meanwhile, jumped 5 basis points to a discounted rate of 6.75% and a yield of 6.95%. Six-month bills rose 5 basis points to a discounted rate of 7.09% and a yield of 7.44%, while one-year bills gained 5 basis points at 7.26% to yield 7.76%.
A basis point is one-hundredth of a percentage point. The yield is the annualized return on an investment in a Treasury bill. The discounted rate is the interest rate the market uses to price bills.
The federal funds rate, the interest on overnight loans between banks, was quoted at 7.875%, up from 7.688% late Wednesday.
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