CREDIT : Weaker Dollar, Inflation Fears Pressure Bond Prices
Bond prices fell Thursday, pressured by the weaker dollar and growing concerns about inflation.
The Treasury’s closely watched 30-year bond declined 21/32 point, or about $6.50 for every $1,000 of face value.
Its yield, which is a key indicator of interest rate trends, rose to 9.17% from 9.11% late Wednesday.
Analysts said bond prices continued to weaken in the face of a declining U.S. currency.
“The bond market took its cue from the dollar,” said Irwin L. Kellner, chief economist at Manufacturers Hanover Trust Co.
Also contributing to weaker bond prices was a government report that housing construction in October posted the biggest increase in eight months. The Commerce Department said new construction rose 7.2% last month to a seasonally adjusted annual rate of 1.55 million units from September.
Both a weaker dollar and stronger housing statistics suggest stronger inflationary pressures. Inflation erodes the value of bonds.
Meanwhile, the Treasury sold $9 billion in 30-year bonds at an average yield of 9.10%, down from 9.17% at the last 30-year auction on May 12. It was the lowest rate since 30-year bonds averaged 8.51% at the Feb. 4 auction.
The 30-year bond auction was postponed for a week because the Treasury previously had sold nearly as many of the bonds as Congress had authorized.
But tax legislation signed by President Reagan on Nov. 11 lifted the limits, paving the way for Thursday’s auction.
In the secondary market for Treasury bonds, prices of short-term government issues were 3/32 to 7/32 point lower, intermediate maturities slipped between point and 15/32 point and 20-year issues lost 5/8 point, according to 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, declined 3.47 to 1,134.25.
Corporate bonds fell. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, had edged down 0.64 to 293.60.
Municipal bonds held steady. The Bond Buyers municipal bond index, which measures the prices on 40 long-term bonds, was unchanged Thursday from Wednesday’s late level.
Yields on three-month Treasury bills, meanwhile, rose to 8.18% as the discount increased 2 basis points to 7.92%. Yields on six-month bills advanced to 8.40% as the discount rose 1 basis point to 7.96%. Yields on one-year bills rose to 8.55% as the discount rose 3 basis points to 7.96%.
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 at 8.25%, up from 8% late Wednesday.
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