CREDIT : Profit Taking Takes Its Toll on Bond Prices

Bond prices fell Wednesday in light trading, which brokers called a profit taking reaction to the market’s sharp rise earlier this week and investor apprehension about an impending government report on employment.

Traders said the market showed little response to the Treasury Department’s announcement on the scope of its Aug. 15 quarterly refunding, in which $22 billion of new securities will be sold.

The auction won’t include any 30-year issues because the Treasury has practically exhausted its authority to issue them without congressional action. But the lack of new 30-year issues had been anticipated by the market and didn’t affect prices, brokers said.

The long bond, which rose nearly a 1 1/2 points or $15 per $1,000 in face amount during the previous two sessions, retreated about 5/16 point or slightly more than $3 per $1,000 in face amount. Its yield, which moves inversely to price, rose to 9.089% from 9.06% late Tuesday.

Besides profit taking, some analysts attributed the market’s decline to fears that the Labor Department’s report on July jobless figures due Friday would show a strong growth in the number of employed.

Higher employment tends to depress bond prices because it implies a stronger economy, rising wages, greater demand for credit and inflation, which erodes the value of fixed-income securities.

Secondary Market Down

“People are getting a bit nervous in front of the employment number,” said Nancy Vanden Houten, a money market economist at Merrill Lynch Capital Markets in New York. “It’s a number that gives you a lot of other information about other numbers to come.”

In the secondary market for Treasury bonds, prices of short-term governments fell about 1/8 point, intermediate maturities fell about 3/8 point and long-term issues fell about 5/32 point, the Telerate Inc., financial data service reported.

The movement of a point equals 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, fell 1.96 to 1,141.46.

In corporate trading, industrials and utilities fell marginally. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, fell 0.14 to 284.33.

Fed Funds Steady

Among tax-exempt municipals, general obligations and revenue bonds were off slightly in light trading.

Short-term government securities were mixed. Yields on three-month Treasury bills rose to 7.099% as the discount rose 1 basis point to 6.89%. Yields on six-month bills fell to 7.445% as the discount fell 2 basis points to 7.09%. Yields on one-year bills rose to 7.838% as the discount rose 1 basis point to 7.31%.

A basis point is one-hundredth of a percentage point. The yield is the annualized return on an investment in a Treasury bill. The discount is the percentage that bills are selling below the face value, which is paid at maturity.

The federal funds rate, the interest on overnight loans between banks, traded at 7.688%, unchanged from Tuesday.

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