Bonds Edge Up as Wall Street Grabs Spotlight

Bond prices drifted higher Thursday in quiet trading that was overshadowed by Wall Street, where the Dow Jones index of 30 industrials rocketed to a record high.

The Treasury’s benchmark 30-year bond rose 1/8 point, or $1.25 for every $1,000 in face amount. Its yield, which falls when the price rises, slipped to 8.15% from 8.17% late Wednesday.

Fueled by an avalanche of program trading and a revival of takeover fever, the Dow industrials shattered their previous record.

The 30-share Dow index jumped 56.53 points to close at 2,734.64, breaking by more than 12 points the previous record close of 2,722.42 set on Aug. 25, 1987.

Analysts said there was little news to move the bond market, in contrast to Wednesday, when bond prices rose in response to a successful auction of five-year Treasury notes. Thursday’s monthly auction of one-year Treasury bills went well, but not exceptionally so, traders said.

“It’s probably appropriate that the stock market gets all the attention. It was very quiet,” said Nancy Vanden Houten, a money-market economist at Merrill Lynch & Co.

An anticipated hike in European interest rates failed to materialize, as West Germany’s central bank led the pack in announcing that monetary policy would remain unchanged.

In the secondary market for Treasury bonds, prices of short-term government issues were unchanged to 1/16 point higher, intermediate maturities were about 3/16 point higher, and long-term issues had gained 1/8 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 Hutton daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, rose 1.26 to 1,176.39.

Moody’s investment grade corporate bond index, which measures total return on a portfolio of 80 corporate bonds with maturities of five years or longer, rose 1.17 to 328.54.

Yields on three-month Treasury bills fell to 8.20% as the discount lost 5 basis points to 7.93%. Yields on six-month bills fell to 8.27% as the discount sank 3 basis points to 7.84%. Yields on one-year bills slipped to 8.29% as the discount fell 4 basis points to 7.73%.

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 9.0625%, down from 9.625% late Wednesday.

Currency

The dollar finished mostly higher in quiet worldwide trading.

Traders said the dollar held within a very narrow range throughout the day, and volume was very thin.

After a brief selloff on unconfirmed rumors that the Federal Reserve and the Bank of Japan might be moving to lower interest rates, the dollar staged a “minor comeback,” said Curtis Perkins, a trader at Chemical New York Capital Markets Group.

The underlying sentiment toward the U.S. currency remains fairly bullish, traders said.

Analysts said the West German Bundesbank’s announcement that it was not altering its monetary policy helped support the dollar. Several other European central banks followed by saying they also planned no immediate changes in interest rates.

Earlier in the week, traders began bracing themselves for a hike in European interest rates, which would pressure the dollar by making the returns on foreign investments more attractive.

In Tokyo, where trading ends before Europe’s business day begins, the dollar rose a sharp 1.25 Japanese yen to close at 143.60 yen. Later in London, it was quoted at 143.29 yen. In New York, the dollar closed at 143.21 yen, up from 143.20 yen late Wednesday.

In London, the dollar gained against the British pound. It cost $1.5698 to buy one pound, cheaper than $1.5700 late Wednesday. In New York, one pound cost $1.5720, more expensive than Wednesday’s $1.5715.

Gold prices declined. On the Commodity Exchange in New York, gold bullion for current delivery lost $1.30 to close at $364.50 an ounce. Republic National Bank of New York quoted a late bid for gold of $362.40 an ounce, down from $364.15 late Wednesday.

Gold fell in London to a late bid price of $362.75 an ounce, down from late Wednesday’s $364.25. In Zurich, Switzerland, gold closed at a bid $362.00, down from $363.85 late Wednesday. Earlier in Hong Kong, gold fell $2.48 to close at a bid $364.75.

Silver prices were mixed. On New York’s Comex, silver for current delivery rose to $5.166 an ounce from $5.164 on Wednesday. In London, the metal traded at a late bid price of $5.17 an ounce, down from $5.19.

Commodities

Coffee futures prices fell sharply on New York’s Coffee, Sugar & Cocoa Exchange on news that Brazil will not re-introduce its coffee retention program.

On other markets, copper was up sharply, sugar prices plunged, grain and soybean futures were mostly lower, livestock and pork futures were down and precious metals were mixed.

Coffee prices settled 4.22 cents to 4.75 cents lower, with the contract for delivery in September at 79 cents a pound.

Copper futures continued their upward spiral as production problems continue to influence the market.

Copper prices were 2.60 cents to 2.90 cents higher, with August at $1.305 a pound.

An expected rise in European sugar production sent sugar futures plummeting on the Coffee, Sugar and Cocoa Exchange.

Sugar settled 0.20 cent to 0.30 cent lower, with October at 13.90 cents a pound.

Grain and soybean futures were mixed in quiet trading on the Chicago Board of Trade.

Overnight rains in the Midwest and the National Weather Service’s 6- to 10-day forecast, which calls for additional precipitation in major crop states, weighed on the market.

Wheat was 0.25 cent to 3 cents higher, with the contract for delivery in September at $3.9375 a bushel; corn was 1.75 cents to 3 cents lower, with September at $2.3425 a bushel; oats were 0.50 cent to 1.50 cents lower, with September at $1.38 a bushel, and soybeans were a 2.25 cents lower to 0.25 cent higher, with September at $5.9575 a bushel.

West Texas Intermediate crude was 10 cents to 20 cents lower, with October at $18.61 a barrel; heating oil was 0.08 cent to 0.29 cent lower, with September at 51.70 cents a gallon, and unleaded gasoline was 0.01 cent to 0.29 cent lower, with September at 54.15 cents a gallon.

MAIN STORY: Part I, Page 1.