Bond prices strengthened Monday, helped by a stronger dollar, increased market demand for U.S. debt securities and easing of anxiety in the market over the Federal Reserve’s recent moves to tighten interest rates.
The Treasury’s key 30-year issue rose about $5 per $1,000 in face amount, and its yield eased to 9.07% from 9.17% late Friday.
Credit market strategists said the impact of Fed efforts to restrict the supply of money available in the banking system, coupled with its hike of the discount rate last month, were receding as fear factors in the market.
“The feeling seems to be the Fed has made its move,” said William Veronda, a fixed-income portfolio specialist at Financial Group, a Denver-based investment firm. “We won’t see any further tightening of rates for a while. So it’s clear sailing.”
Traders attributed part of the market’s strength Monday to an increase in the dollar’s value, which makes U.S.-denominated securities worth more to foreigners. Some said prices were buoyed by internal market demand for bonds, a technical reaction to recent market declines.
In addition, others said a large, unidentified short-term buyer of U.S. Treasury securities, rumored to be Saudi Arabia’s state bank, may have accounted for some of the increased demand.
In the secondary market for Treasury bonds, prices of short-term governments rose about 1/8 point, intermediate maturities rose about 5/16 point and long-term issues rose about 1/2 point, Telerate Inc., a financial data service said.
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 Hutton daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, rose 2.34 to 1,124.62.
In corporate trading, industrials also rose. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, increased 1.08 to 297.96. Prices also strengthened slightly in the municipal market.
Yields on three-month Treasury bills fell to 8.86% as the discount fell 5 basis points to 8.57%. Yields on six-month bills were unchanged as the discount stayed at 8.65%. Yields on one-year bills fell to 9.28% as the discount fell 3 basis points to 8.59%.
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 sell below the face value, which is paid at maturity.
The federal funds rate, the interest on overnight loans between banks, was quoted at 9.625%, up from 9.5% late Friday.
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