CREDIT : Long-Term Bond Prices Rise on Auction Optimism
Bond prices were mixed Monday, with long-term issues rising and shorter maturities slipping.
The Treasury’s bellwether 30-year issue rose 7/32 point, or about $2.20 per $1,000 face amount. Its yield slipped to 9.10% from 9.12% late Friday.
Short-term governments, meanwhile, fell about 1/16 point. Intermediate maturities were unchanged to 1/16 point higher and 20-year bonds fell 5/16 point, according to Telerate Inc., the financial information service.
The movement of a point is equivalent to a change of $10 in the price of a $1,000 bond.
Kevin Flanagan, a money market economist with the investment firm Dean Witter Reynolds Inc., said the long bond rose on the strength of the dollar and a drop in commodities prices, which lessen the possibility of inflation.
“Long bond people are basically thinking that inflation should be under control,” Flanagan said.
Credit markets are concerned that increased inflation would erode the value of fixed-income securities such as bonds.
Traders also bought long bonds on optimism about today’s planned Treasury auction, in which three-year notes will be auctioned, Flanagan said.
On Wednesday, 10-year notes will be auctioned in the second day of the government’s quarterly refunding sale. The $22-billion sale will not include 30-year issues because the Treasury has practically exhausted its authority to issue them without congressional action.
Flanagan said the price of shorter-term issues was down because traders anticipate that the Federal Reserve will tighten credit.
He said the market expected the Fed to allow the federal funds rate, the interest charges for overnight loans between banks, to rise. The fed funds rate traded at 7.68% late Monday, unchanged from late Friday.
The Shearson Lehman daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, rose 0.51 to 1,138.19.
Corporate bonds also rose. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, advanced 0.38 to 284.09.
Highest Since Oct. 13
In the tax-exempt market, general obligation and revenue bonds rose 1/32 point from Friday, with the average yield unchanged at 8.02%, according to the Bond Buyer index of 40 actively traded municipal bonds.
Yields on three-month Treasury bills rose to 7.04% as the discount rate fell 5 basis points to 6.84%. Yields on six-month bills rose to 7.60% as the discount rate rose 1 basis point to 7.24%. Yields on one-year bills were unchanged at 8.0% as the discount rate was also unchanged at 7.46%.
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 rates were the highest since Oct. 13, when three-month bills sold for 6.96% and six-month bills averaged 7.34%.
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