Bond prices fell in quiet trading Monday, reacting to what some traders called inflation fears generated partly by an oil price rally.
Interest rates on short-term government securities jumped to the highest levels in more than four years in a Treasury auction of three- and six-month bills. Yields on three-month bills jumped to 9.41%, exceeding yields on the long-term bond.
The Treasury’s benchmark 30-year bond was down 3/32 point, or under $1 per $1,000 in face value. Its yield, which moves inversely to price, rose to 9.22% from 9.21% late Thursday, the last previous session because financial markets were closed for Good Friday.
The dollar was sharply higher against all key currencies, particularly the Japanese yen, in thin post-holiday trading.
The dollar’s strength ordinarily tends to boost bond prices by making dollar-denominated securities worth more. But the bond market appeared to ignore the dollar and fall in response to oil prices, which jumped in reaction to the closure of an Alaskan harbor because of a massive oil spill.
Fed Funds Rate Steady
Raymond W. Stone, chief financial economist of Merrill Lynch Capital Markets, said the strength in the energy markets may have depressed bonds by renewing worries about inflationary pressures building up in the economy. Inflation erodes the value of fixed-income investments.
In the secondary market for Treasury bonds, prices of short-term governments slipped 1/16 to 3/32 point, intermediate issues were unchanged to down 1/16 point and long-term maturities were unchanged to down 3/32 point, according to Telerate Inc., the 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, was off 0.34 at 1,113.64.
In corporate trading, industrials edged up. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, rose 0.32 to 296.02.
In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds remained unchanged from 89.5 late Thursday. The average yield to maturity also stayed the same at 7.84%.
Yields on three-month Treasury bills rose to 9.41% as the discount rose 7 basis basis points to 9.09%. Yields on six-month bills rose to 9.64% as the discount rose 9 basis points to 9.09%. Yields on one-year bills were up to 9.73% as the discount rose 6 basis points to 8.97%.
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, traded at 9.875% unchanged from late Thursday.