CREDIT : Bond Prices Up; Key Rates Decline in Volatile Session
Bond prices finished higher Friday after zig-zagging through a volatile trading session, pushing key interest rates below 9%.
The Treasury’s closely watched 30-year bond rose 9/16 point, or about $5.60 for every $1,000 in face value. Its yield, which moves inversely to its price and is often an indicator of interest rate trends, fell to 8.97% from Thursday’s 9.03%.
Traders said prices were initially driven lower by a discouraging government report on inflation.
The Labor Department said wholesale prices rose a brisk 0.6% in August. If the August increase held for 12 straight months, inflation at the wholesale level would amount to 6.9%, more than triple the 2.2% price rise in 1987.
Prices then rebounded slightly when traders took a closer look at the inflation figures and noted that much of the August increase came from volatile energy and food prices.
sh More Growth Anticipated
A lack of sustained buying brought another decline in bond values, but falling prices of oil and other commodities lifted them again, traders said.
“It was up, down, up, down,” said John V. Sebastian, executive vice president of Clayton Brown & Associates, an investment firm based in Chicago. “This was a real roller-coaster day.”
Traders are awaiting next week’s spate of economic data, which include government reports on the nation’s trade deficit for July and industrial production and retail sales for August.
The general sentiment in the market is that the reports will show continued growth in the economy, which is bearish for the inflation-wary credit markets, said Jay Goldinger, a principal with Capital Insight Inc., an investment firm in Beverly Hills.
But Goldinger said the fact that “most players are sitting on cash looking to buy” bonds has offset those prospects.
In the secondary market for Treasury bonds, prices of short-term government issues edged up 1/32 point to 1/8 point; intermediate maturities rose 7/32 point to 5/16 point, and long-term issues gained almost 1/2 point, according to figures provided by Telerate Inc., a financial information service.
The movement of a point is equivalent to 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 2.45 to 1,145.98.
Corporate bonds rose slightly. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, advanced 0.66 to 289.19.
Yields on three-month Treasury bills, meanwhile, fell to 7.51% as the discount fell 4 basis points to 7.28%. Yields on six-month bills slipped 2 basis points to 7.79% as the discount declined to 7.41%. Yields on one-year bills fell to 8.04% as the discount declined 2 basis points to 7.50%.
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, was quoted late in the day at 8.125%, unchanged from late Thursday.
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