FINANCIAL MARKETS : Bond Prices Rise; Dollar Closes Mixed
Bond prices rose broadly Thursday as a government report on consumer prices indicated inflation is more subdued than expected.
The Treasury’s benchmark 30-year bond rose 27/32 point, or about $8.40 per $1,000 face amount. Its yield dropped to 7.96% from 8.03% late Wednesday.
Early in the day, the Labor Department said consumer prices in September rose 0.2%. Many analysts had been looking for a rise twice as large.
The rise also came to 0.2% when food and energy costs were excluded. That narrower measure is an important barometer for the markets.
The moderate rise was viewed favorably because higher prices erode the value of fixed-income securities such as bonds. The smaller rise was also seen as giving the Federal Reserve more leeway to encourage lower interest rates, a development that would boost bond prices.
In the secondary market for Treasury bonds, prices of short-term governments rose by 1/16 point to 1/8 point, intermediate maturities climbed by 5/32 to 1/2 point and long-term issues jumped as much as 7/8 point, according to Telerate Inc., the financial information service.
The movement of a point equals a change of $10 in the price of a $1,000 bond.
Prices also were generally higher in the market for high-yield junk bonds, according to John Lonski of Moody’s Investors Service.
“It reflects the strength in equities and quality bonds,” he said, adding that it was one of the better days for the junk bond market in recent weeks.
He estimated that prices were up $2.50 to $5 for every $1,000 in face value on average by late afternoon and advancing bonds well outnumbered declines.
The federal funds rate, the interest on overnight loans between banks, was quoted at 8.688%, down from 8.75% late Wednesday.
Currency
The dollar finished mixed against major foreign currencies at the end of an uneventful session.
Gold prices eased in the United States after posting scattered gains and losses overseas.
On the Commodity Exchange in New York, gold for current delivery settled at $367.10 an ounce, down $1.60 from Wednesday. Republic National Bank quoted an ounce of gold at $366.50 at 4 p.m. EDT, $2.20 lower than Wednesday’s late bid.
Currency dealers in financial centers around the world temporarily sold dollars when news broke that September’s CPI rise was less than expected.
But the unexpectedly small inflation rate had little lasting impact on currency trading.
Speculation about the chances for lower interest rates circulated in the markets and tended to temper any urge to buy dollars, dealers said. The low inflation reading could give the Federal Reserve Board greater leeway to ease monetary tightness, leading to lower interest rates.
The U.S. dollar opened this morning at 141.93 yen on the Tokyo foreign exchange market.On Thursday, the dollar closed at 141.55 yen down from 142.10 yen at Wednesday’s close. Later, in London, it fell further to 141.25 yen. But at the end of New York’s day the dollar was quoted at 142 yen, stronger than Wednesday’s late level of 141.40 yen.
In London, the British pound rose to $1.5940 from $1.5880 late Wednesday. In New York, a pound fetched $1.5975 vs. $1.5922 on Wednesday.
Commodities
Signs of a large Soviet purchase of U.S. corn pulled corn futures prices up sharply on the Chicago Board of Trade, and it wasn’t just idle speculation.
The Agriculture Department confirmed after the close that the Soviet Union had bought 1.2 million metric tons of corn.
On other commodity markets, copper futures rallied while precious metals retreated, stock index futures soared, energy futures advanced, and livestock and meat futures were mixed.
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