Bond prices tumbled and interest rates surged in light post-holiday trading Friday amid concerns that the dollar may continue to fall while inflationary pressures intensify.
The Treasury’s closely watched 30-year bond dropped 5/8 point, or about $6.25 for every $1,000 in face amount.
Its yield, which moves in the opposite direction from its price and is often seen as an indicator of broader interest rate trends, climbed to 9.17% from 9.10% late Wednesday.
The bond market was closed Thursday for the observance of Thanksgiving, and analysts said dealings also were light on Friday as many traders took a four-day weekend.
The cash markets for Treasury securities closed in the early afternoon, several hours earlier than normal, on the recommendation of the Public Securities Assn.
But analysts said speculation that the Organization of Petroleum Exporting Countries would ratify a tentative oil production accord over the weekend had already knocked bond prices sharply lower.
The 13-nation cartel hopes that production restraint will lift oil prices.
“Oil prices had been a positive disinflation force, so the bond market saw (he tentative OPEC agreement) as disappointing,” said David Hale, economist for Kemper Financial Services in Chicago.
If oil prices rose, the increase would add to inflationary pressures at a time when the economy is already operating at a relatively high rate. Inflation erodes the value of fixed-income securities such as Treasury notes and bonds.
Hale said another reason bond prices fell was speculation that the dollar may be headed lower, possibly discouraging foreign investors from maintaining their holdings of dollar-denominated securities.
The dollar has been falling steadily since the election of George Bush because of doubts that the Republican president and a Democrat-controlled Congress will be able to take effective steps to reduce the U.S. trade and budget deficits.
William V. Sullivan Jr., director of money market research at Dean Witter Reynolds Inc., said the price decline also reflected bond dealers’ efforts to find retail buyers for the big supply of new two- and five-year Treasury notes that the dealers bought at auction earlier this week.
“We’ve got too many negatives on the table here,” Sullivan said.
In the secondary market for Treasury bonds, prices of short-term government issues fell 1/4 point, intermediate maturities lost about 1/2 point and long-term issues dropped 7/8 point, according to Telerate Inc., a financial information service.
The movement of a point is equivalent to 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, fell 4.24 to 1,130.28.
In the corporate bond market, prices lost ground. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, was down 1.04 to 292.69.
In the tax-exempt market, prices dropped by about 3/8 point, according to the Bond Buyers municipal bond index.
Yields on three-month Treasury bills rose to 8.29% as the discount rose 4 basis points to 8.02%. Yields on six-month bills rose to 8.57% as the discount rose 5 basis points to 8.12%. Yields on one-year bills rose to 8.76% as the discount rose 7 basis points to 8.12%.
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 8.375%, up from 8.3125% late Wednesday.
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