CREDIT : Bond Prices Gain on Mixed Economic News
Bond prices rose marginally in light trading Tuesday as traders found little to go on in the government’s report on second-quarter economic growth.
The Treasury’s closely watched 30-year issue rose point, or about $2.50 for every $1,000 in face value as its yield edged down to 9.04% from 9.05% late Monday.
The Commerce Department said the gross national product, the broadest measure of the economy’s growth, rose less than expected: 3.0% in the April-June period rather than the 3.3% estimated earlier.
Inflation advanced more rapidly than previously thought. The government said a price measure tied to the GNP, the GNP deflator, rose at an annual rate of 5.5%, the fastest rate in nearly six years. The deflator rose 1.7% in the first quarter.
Reaction Called Mild
“Scaling down the GNP to 3% real growth is bullish for bonds but the GNP deflator was raised, so one negated the other,” said Marshall B. Front, an economist at the Chicago investment and mutual-fund management firm of Stein Roe & Farnham.
Bondholders tend to sell when inflation is on the rise because it erodes the value of fixed-income investments such as bonds and notes.
Analysts said trading after the report was very light and investors appeared to be holding back, awaiting the government’s report on consumer prices that is due out later this week.
One reason for the mildness of the reaction is that the report referred to the April-June period, which is long past, said James Capra, a senior vice president at Shearson Lehman Government Securities Inc.
In the secondary market for Treasury bonds, prices of short-term government issues rose 1/32 point; intermediate maturities rose 3/32 point to 3/16 point, and 20-year issues were up point, according to figures provided by Telerate Inc., a financial information service.
Federal Funds Rate Up
The Shearson Lehman daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, gained 1.26 to 1,143.57.
In corporate trading, industrials advanced slightly. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, rose 0.06 to 289.98.
Yields on three-month Treasury bills rose to 7.40% from 7.37%, and the discount rose to 7.20% from 7.15%. Yields on six-month bills fell to 7.73% from 7.77% as the discount fell to 7.35% from 7.39%. Yields on one-year bills fell to 8.00% from 8.02% and the discount fell to 7.47% from 7.49%.
The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 8.125%, up from 8% late Monday.