CREDIT : Bond Prices Fall; 30-Year Issue Omitted From Auction
Bond prices slipped in sluggish trading Wednesday as the dollar weakened, precious metals prices rose and traders awaited the U.S. Treasury’s quarterly refunding announcement.
The Treasury said in its late-afternoon announcement that it planned to sell $30 billion in new securities next week but would omit the 30-year bond as part of the package.
The 30-year Treasury bond, which lost 5/32 point Tuesday, finished down 3/32 point, or about $1 per $1,000 in face amount.
Its yield rose to 8.78% from 8.76% late Tuesday.
Bond prices traded in a narrow range during most of the day before the refunding announcement. After the 5 p.m. EST announcement, bond prices firmed slightly.
The Treasury said it would sell $30 billion of new securities next week to raise cash to pay the nation’s debt. The auctions will include $9.5 billion in three-year notes, $9.5 billion in 10-year notes and $11 billion in a 37-day cash-management bill.
However, Treasury officials said the 30-year bond will not be part of next week’s auction because President Reagan has not yet signed a tax bill with a provision needed to give the government authority to issue any more such bonds.
Other Factors Cited
“The market was holding back waiting to see if there was going to be a long bond,” said Mark Haslinger, a trader with Clayton Brown & Associates. “There’s no official long bond, and the market was up slightly after the announcement. Prices probably would have gone down if the Treasury had announced a 30-year bond.”
Analysts said a weaker dollar and higher prices for gold, silver and platinum also contributed to lower bond prices. Each raised the prospect of higher inflation, which erodes the value of fixed-income investments.
“It’s a very hostile environment for bonds,” said William Sullivan, director of money market research at Dean Witter Reynolds. “It’s surprising bonds aren’t down more.”
Analysts said the market ignored Wednesday’s government reports showing a decline in home sales and factory orders in September.
The market is also awaiting the Labor Department’s report on unemployment for September. The report is to be released Friday. Until then, “there is a lot of uncertainty in the market,” said Mitchell Held, chief economist at Smith Barney, Harris Upham & Co.
In the secondary market for Treasury bonds, prices of short-term government issues were down between 1/32 point and 1/16 point, intermediate maturities fell 3/32 point to 1/8 point and long-term issues lost 5/32 point, according to Telerate Inc., a financial information service.
Fed Funds Rate Rises
The movement of a point equals a change of $10 in the price of a bond with a $1,000 face value.
Corporate bonds also slipped. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, fell 0.62 to 297.53.
Yields on three-month Treasury bills, meanwhile, rose to 7.64%, with the discount up 6 basis points to 7.40%. Yields on six-month bills rose to 7.87%, with the discount up 1 basis point to 7.48%. Yields on one-year bills edged up to 8.06%, with the discount up 1 basis point at 7.51%.
The federal funds rate, the interest on overnight loans between banks, was 8.675%, up from 8.313% late Tuesday.
