CREDIT : Bond Prices Up on Report of Economy’s Slower Pace

Bond prices pushed higher and most interest rates tumbled Wednesday on speculation that the economy is growing slowly enough to dissuade the Federal Reserve from encouraging higher interest rates.

The Treasury’s 30-year bond rose 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, fell to 9.06% from 9.13% late Tuesday.

Analysts said the bond market got a lift when the Federal Reserve released a report prepared for its policy-making meeting next week that said the economy appeared to be growing at a slower pace than earlier this year.

Some traders had feared the economy may be overheating.

“The market seemed to interpret the report as a reason to feel secure that the Fed isn’t going to tighten soon,” said Nancy Vanden Houten, a money market economist for Merrill Lynch Capital Markets.

But she noted that report is only one of the factors the Fed considers in charting its policy course.

Some market watchers say the Fed may move to boost interest rates to help defend the dollar, which has been falling in recent days against other major currencies.

Kathy Camilli, an economist for Drexel Burnham Lambert Inc., said most of the buying on Wednesday was by professional traders who had previously sold borrowed contracts and did not want to have outstanding positions in advance of the Labor Department’s employment report for November due on Friday.

Unaffected by Income Report

She said the consensus estimate is that the November figures will show non-farm payroll growth of about 250,000, compared to 323,000 in October.

The analysts said the bond market was indifferent to a report Wednesday that Americans’ personal income rose 1.8% in October.

In the secondary market for Treasury bonds, prices of short-term issues rose 1/4 point, intermediate maturities rose 1/2 point and 20-year issues were up 5/8 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, rose 4.56 to 1,137.16.

In corporate trading, industrials were also up. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, rose 1.14 to 294.42.

Federal Funds Rate Up

In the tax-exempt market, prices rose by about 5/32 point, according to the Bond Buyers index of 40 actively traded municipal bonds.

Yields on three-month Treasury bills fell to 8.07% as the discount tumbled 16 basis points to 7.81%. Yields on six-month bills fell to 8.39% as the discount slid 12 basis points to 7.95%. Yields on one-year bills fell to 8.58% as the discount fell 10 basis points to 7.97%.

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 8.50%, up from 7.875% late Tuesday.

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