CREDIT : Fear of Bond Glut Depresses Prices
Bond prices were mixed in lackluster trading Tuesday amid continued investor concern about an oversupply of long-term government securities.
The Treasury’s closely watched 30-year bond declined 3/16 point, or about $1.80 for every $1,000 in face value. Its yield rose to 8.93% from 8.91% late Monday.
Bond prices had weakened slightly last week as investors anticipated a vote in Congress to remove the cap on 30-year Treasury issues. On Monday, long-term bond prices declined further after Congress voted to allow the Treasury to sell more long-term bonds.
The Treasury is expected to announce Nov. 2 plans to issue $8.5 billion to $9 billion of 30-year bonds in its quarterly financing.
Analysts said Tuesday’s weakness was because of ongoing investor concern in the absence of more significant economic data. Bondholders fear that a big increase in the supply of the Treasury bonds would depress their price.
“People are waiting to get more fundamental data of a more significant nature like tomorrow’s GNP report,” said Elizabeth G. Reiners, vice president of Dean Witter Reynolds Inc. The Commerce Department is scheduled to release gross national product figures for the third quarter today.
No Surprises
The market virtually ignored two economic reports Tuesday suggesting lower inflation and a further weakening of the economy, analysts said.
A Commerce Department report said factory orders for durable goods fell 4.1% in September. A second report by the National Assn. of Realtors said sales of existing single-family homes fell 2.2% last month.
“There was nothing surprising in either report,” said Marshall Front, an economist with the Chicago investment firm of Stein Roe & Farnham. “People don’t pay much attention to durable goods because they are so volatile from month to month. And higher interest rates have dampened home sales as expected.”
In the secondary market for Treasury issues, prices of short-term governments were unchanged, intermediate maturities ranged from 1/32 point lower to 3/32 point higher and the 20-year issue slipped 1/32 point, according Telerate Inc., a financial data service.
The movement of a point equals a change of $10 in the price of a bond with a $1,000 face value.
Yields on three-month Treasury bills, meanwhile, rose to 7.70% as the discount rose to 7.46%. Yields on six-month bills was unchanged at 7.95% with the discount flat at 7.55%. Yields on one-year bills declined to 8.16% as the discount dipped 1 basis point to 7.59%.
The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 8.25%, down from 8.313%.
