CREDIT : Bond Prices Close Lower After Early Rally Fizzles
Bond prices finished lower Thursday in mostly quiet trading, as a mild rally sparked Wednesday by encouraging trade figures ran out of steam.
The Treasury’s closely watched 30-year issue declined about point, or $2.50 for every $1,000 in face value. Its yield, which is often an indicator of interest rate trends, rose to 8.99% from 8.97%.
Bond values had risen earlier in the session, continuing to draw support from Wednesday’s government report that the U.S. merchandise trade deficit fell to $9.5 billion in July. The key 30-year issue had gained about point by midday, lowering its yield to 8.95%.
Retail Sales Fall
But traders later moved to sell bonds and capture their profits from the rally, analysts said.
Elizabeth Reiners, a vice president of Dean Witter Reynolds Inc., noted that data released early Thursday on retail sales and factory use for August should have been positive news for the bond market but was largely ignored.
The government reported that retail sales fell 0.2% and U.S. industry operated at 83.7% of capacity in August, data that pointed to an easing of inflationary pressures and would normally lift bond prices.
“The bond market does not seem to have a whole lot of upside potential,” said John Sebastian, executive vice president of Clayton Brown & Associates, an investment firm in Chicago.
In the secondary market for Treasury bonds, prices of short-term government issues declined 3/32 point to 1/8 point, intermediate maturities lost 3/16 point to point, and 20-year issues fell 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 Treasury issues with maturities of a year or longer, fell 2.04 to 1,145.27.
Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, slipped 0.12 to 290.63.
Federal Funds Rate Up
Yields on three-month Treasury bills, meanwhile, rose to 7.39% as the discount rose 3 basis points to 7.17%. Yields on six-month bills rose to 7.75% as the discount advanced 4 basis points to 7.37%. Yields on one-year bills jumped to 7.94% as the discount rose 5 basis points to 7.42%.
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 at 8.25%, up from 8.063%.
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