CREDIT : Bond Prices Ease Back From Early Gains
Bond prices eased and closed little changed Friday after strengthening on news of moderate rises in personal income and spending that diluted fears of acute inflation.
The Treasury’s key 30-year bond rose about $1 for each $1,000 in face amount, and its yield softened to 9.43% from 9.45% late Thursday. Earlier in the trading session, the 30-year bond was up about $5.
Bond brokers said the market initially strengthened after the Commerce Department reported Americans’ personal income rose by 0.6% in July and personal consumption spending rose 0.5%.
Department figures showed that two components of inflation, rising wages and surging demand for goods, were not as excessive as many bond investors had anticipated. The bond market is sensitive to inflation because it erodes the value of fixed-income investments.
The Commerce Department report caused short-covering, which means professional traders who had sold borrowed bonds on the assumption that the market would drop because of the news rushed to buy them back. The effect was to raise prices.
Nevertheless, bonds eased as the day drew to a close, partly because market professionals were reluctant to go into a weekend with risky positions and decided to take some profits on whatever gains they had made for the week.
In the secondary market for Treasury bonds, prices of short-term governments rose about 1/32 point, intermediates rose about 1/8 point and long-term maturities rose about 3/32 point, the financial reporting service Telerate Inc. said.
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 daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, rose 0.46 to 1,123.53.
In corporate trading, industrials and utilities also strengthened slightly. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, rose 0.14 to 281.65.
Muncipal bonds also were slightly higher or unchanged, brokers said.
Yields on three-month Treasury bills rose to 7.57% as the discount rose 6 basis points to 7.34%. Yields on six-month bills were unchanged at 7.87% and the discount stayed at 7.48%. Yields on year bills rose to 8.30% as the discount rose 1 basis point to 7.72%.
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 8.125%, down from 8.25% late Thursday.
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