CREDIT : Good News on Trade Deficit Gives Bond Prices a Boost
Bond prices rose Wednesday in mostly quiet trading, boosted by a government report that the nation’s trade deficit for July shrank to its lowest level in about four years.
The Treasury’s closely watched 30-year issue rose about point, or $2.50 for every $1,000 in face value. Its yield, which is often an indicator of interest rate trends, declined to 8.97% from 8.99% late Tuesday.
The Commerce Department said the U.S. merchandise trade deficit fell to $9.5 billion in July from a revised $13.2-billion shortfall in June. The July figure represented the lowest monthly imbalance since December, 1984, and was far less than the $11.5 billion to $12.5 billion most analysts had anticipated.
Analysts said they were encouraged because the improvement was largely because of a drop in imports rather an increase in exports. They said that suggested the economy may be slowing down, thereby easing fears of inflation.
Bonds soared in value immediately after the report was released, then retreated a bit on profit taking, traders said.
They said the retreat was understandable, given the steady gains in bond prices in recent weeks.
“This market has moved up quite a bit here in the last few weeks,” said Mitchell Held, chief financial economist for Smith Barney, Harris Upham & Co.
Bond prices got a smaller lift, he noted, from another government report Wednesday that said U.S. industrial production rose a modest 0.2% in August, the smallest gain in five months. Like the merchandise trade figures, the industrial output data indicated a possible slowdown in the economy and calmed concern about inflation.
In the secondary market for Treasury bonds, prices of short-term government issues rose 1/16 point to 5/32 point, intermediate maturities advanced 5/32 point to 9/32 point, and 20-year issues jumped 11/32 point, according to Telerate Inc., a financial 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, rose 1.95 to 1,147.31.
Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, was up 1.54 at 290.75.
Yields on three-month Treasury bills, meanwhile, fell to 7.36% as the discount fell 4 basis points to 7.14%. Yields on six-month bills fell to 7.71% as the discount slipped 7 basis points to 7.33%. Yields on one-year bills fell to 7.89% as the discount fell 9 basis points to 7.37%.
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 8.063%, unchanged from late Tuesday.