CREDIT : Bond Prices Stumble Over Higher Trade Deficit News
Bond prices finished mostly lower Thursday in active trading, weakened by news of a larger-than-expected widening in the nation’s trade deficit in August.
The Treasury’s closely watched 30-year bond fell about 1/8 point, or $1.25 for every $1,000 in face value. Its yield, which moves in the opposite direction and is often an indicator of interest rate trends, rose to 8.92% from 8.90% late Wednesday.
The Commerce Department reported that the U.S. merchandise trade deficit swelled to $12.18 billion in August from $9.47 billion in July. Bond traders had generally expected an August shortfall of between $11 billion and $12 billion.
Analysts said bond prices dropped immediately after the release of the trade figures and later posted an unimpressive recovery.
“They didn’t like the trade numbers too much,” said Mitchell Held, chief financial economist for Smith Barney, Harris Upham & Co.
Analysts said bond prices also were depressed by a sharp slump in the dollar, which tends to reduce the value of bonds and notes denominated in the U.S. currency.
The dollar’s 1.2% drop against the Japanese yen and 1% drop against the West German mark in New York trading brought the U.S. currency to its lowest level since late June.
Dollar Took a Beating
The dollar was quoted late in New York at 127.42 yen, down from 129.02 yen late Wednesday, and at 1.8152 marks, down from 1.8344 marks.
“The dollar took a real beating,” said Elizabeth Reiners, a vice president of Dean Witter Reynolds Inc.
In the secondary market for Treasury bonds, prices of short-term government issues were unchanged to 1/32 point lower, intermediate maturities were flat to 1/16 point lower, and long-term issues declined 3/16 point, according to figures provided by Telerate Inc., a financial information service.
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, slipped 0.84 to 1,149.85.
In corporate trading, prices also declined. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, edged down 0.22 to 294.61.
Fed Funds Rate Drops
Yields on three-month Treasury bills, meanwhile, rose to 7.56% as the discount jumped 7 basis points to 7.33%. Yields on six-month bills rose to 7.77% as the discount edged up 1 basis point to 7.39%. Yields on one-year bills increased to 8.05% as the discount rose 4 basis points to 7.51%.
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%, down from 8.125% late Wednesday.