CREDIT : Reports That Economy Is Slowing Give Bonds a Lift
Bond prices strengthened Monday, although they were knocked off their highs of the day by central bank action to reduce the value of the dollar.
The Treasury’s key 30-year bond rose $3.13 per $1,000 in face amount and its yield, which moves inversely, fell to 9.06% from 9.09% late Friday.
The central banks’ dollar sales were more effective than usual because the Bank of Japan joined in the dollar-lowering efforts after a long absence from intervention.
Finance ministers of seven major industrialized democracies said Sunday after a meeting that they would combat the dollar’s appreciation by selling the currency in coordinated intervention.
Bonds held their gains for awhile after the dollar began its descent but eventually weakened, said Marilyn Cohen, an analyst at Capital Insight Inc. in Beverly Hills.
An outlook for a declining dollar makes investors reluctant to invest in dollar-denominated securities as well as raising the risk of inflation spurred by more costly imported goods.
The bond market was helped by a report the National Assn. of Purchasing Management released over the weekend that suggested economic growth slowed significantly in March.
The report further eased fears of inflation and higher interest rates, which hurt the value of fixed-income investments such as bonds.
Another report released Monday by the Commerce Department showed construction spending remained unchanged in February, viewed as another signal the economy is slowing.
In the secondary market for Treasury bonds, prices of short-, medium- and long-term governments rose about 1/4 to about 3/8 point, financial information service Telerate Inc. reported.
The movement of a point is 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 4.07 to 1,124.77.
In corporate trading, industrials also strengthened. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, rose 0.92 to 299.07.
In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds rose 1/4 point to 90 1/4. The average yield to maturity dropped to 7.78% from 7.79% late Friday.
The federal funds rate, the interest on overnight loans between banks, traded at 9.875%, down from 10% late Friday.
