Bond Prices Rise Sharply Despite Stock Rebound
Treasury bond prices rose sharply Tuesday, sustaining most of their large early gains despite an afternoon rebound in the volatile stock market.
Encouraging signs Tuesday that the Federal Reserve would not drive interest rates higher to fight inflation, the enemy of fixed-income securities such as bonds, also boosted the credit market during a hectic trading day.
In the secondary market for Treasury bonds, the bellwether 30-year issue gained 5/32 point, or $4.69 per $1,000 face value, down from as much as 15/32 point earlier in the day.
The bond’s yield, which moves in the opposite direction from its price, tumbled to 7.89% from 7.93% late Monday.
“The stock market was the real story,” said Steven A. Wood, an economist with BankAmerica Capital Markets Group in San Francisco.
The rise in Treasury prices followed a pattern established in the Friday the 13th stock market tumble, when bonds rose sharply as investors shifted money out of stocks as the Dow Jones industrial index fell about 190 points. The long bond rose about $5 on Monday, after the Dow closed down 26 points.
On Tuesday, the Dow index declined as much as 85 points in the morning session before rebounding to finish the day down 3.69 points.
“Half the gains were sustained and that really was a pretty good performance,” Wood said of Tuesday’s dealings.
The federal funds rate, the interest on overnight loans between banks, was quoted at 8.688%, up from 8.75% on Monday.
Currency
The dollar finished lower against most major currencies, depressed by Wall Street’s volatility and expectations of lower U.S. interest rates.
The steep morning plunge of more than 80 points in the Dow Jones industrial index touched off a heavy but brief flurry of dollar sales that subsided once the stock market started to recover later in the day.
David Jaques, a vice president at Barclays Bank PLC in New York, said currency dealings were lethargic in the early going, with traders lacking a compelling reason to buy or sell. News of a 0.1% decline in September orders for U.S. durable goods created barely a ripple in the currency markets because the figure virtually matched advance estimates.
The dollar began its trading day in Tokyo with a fall to 142.10 Japanese yen from 142.40 yen at Monday’s close. Later, in London, it declined further to 141.95 yen. It was quoted at 141.50 yen in New York, down from 141.90 yen on Monday.
In London, the British pound rose to $1.6065 from $1.5945 late Monday. A pound cost $1.6075 at the end of New York trading, compared to $1.6030 on Monday.
Commodities
Copper futures prices nose-dived for the third straight day, dropping to 2 1/2-month lows on New York’s Commodity Exchange on selling fueled by perceptions of a weakening economy.
On other futures markets, precious metals advanced; stock index futures retreated in a day of wild trading; grain and soybean futures fell; oil futures were mixed, and livestock and meat futures were mixed.
Copper futures settled 0.9 cent to 4.6 cents lower, with the contract for delivery in December down 4.5 cents at $1.151 a pound, its lowest daily close since Aug. 11.
