CREDIT : Inflation Fears Push Down Bond Prices
Bond prices lost ground Friday after the government reported wholesale prices shot up faster than expected last month.
But prices managed to recover from the day’s lows reached shortly after release of the wholesale price report.
The Treasury’s benchmark 30-year bond finished down 18/32 point, or $5.25 per $1,000 face amount, while its yield, which moves in the opposite direction from its price, rose to 9.04% from 8.89% late Thursday.
Prices of some 30-year issues plunged by nearly a full point shortly after the Labor Department released its report that its producer price index climbed 1% in January, its biggest monthly increase since an identical surge in October, 1985, and equivalent to a 12.7% annual rate of inflation.
The inflation report reignited fears that the Federal Reserve would push interest rates higher in a bid to slow the economy and curb inflation.
Inflation erodes the value of fixed-income securities such as Treasury notes and bonds, but so do rising interest rates.
As the day progressed, bond prices retraced some territory as the dollar surged on foreign exchange markets. A rising dollar makes dollar-denominated investments more attractive to foreign investors.
In the secondary market for Treasury bonds, prices of short-term governments fell by between 3/16 point and 11/32 point, intermediate maturities fell 11/32 point and long-term issues were down 1/2 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 Hutton daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 3.83 to 1,127.79.
In corporate trading, industrials fell. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of 5 years or longer, lost 0.68 to 298.52.
In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds fell 17/32 point to close at 91 7/32. The average yield to maturity rose to 7.65% from 7.61% late Thursday.
Yields on 3-month Treasury bills rose to 8.86% as the discount rose 9 basis points to 8.56%. Yields on 6-month bills rose to 9.05% as the discount rose 13 basis points to 8.55%. Yields on 1-year bills rose to 9.20% as the discount rose 12 basis points to 8.53%.
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 9.0625%, down from 9.125% late Thursday.
