Financial Markets : BONDS : Prices Decline Sharply in Wake of Inflation Report
Bond prices fell sharply Friday, reflecting investor discouragement over a government report showing inflation at its worst level in eight years during 1989.
The Treasury’s closely watched 30-year bond fell 21/32 point, or $6.56 for every $1,000 in face value. The bond’s yield, which rises when its price declines, surged to 8.17% from 8.11% late Thursday.
The government’s report that producer prices rose 0.7% in December took a toll on the credit markets.
The wholesale price report helped send the stock market sharply lower, with the Dow Jones industrial index falling 71.46 to 2,689.21, but the bond market generally did not benefit, as it sometimes does, from losses on Wall Street.
When stocks are down, bonds are sometimes seen as a safer haven, and many investors pick up Treasury issues in what is called a “flight to quality.”
Prices fell in the junk bond market in response to the decline on Wall Street.
In the secondary market for Treasury securities, short-term government issues were unchanged, intermediate maturities fell 1/32 point to 5/16 point and long-term issues dropped 5/8 point, according to figures provided by 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, fell 2.57 to 1,179.39.
The federal funds rate, the interest on overnight loans between banks, was quoted at 8.063%, unchanged from late Thursday.
In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds fell 3/16 point to 92 31/32. The average yield to maturity rose to 7.29% from 7.27% late Thursday.
DOW JONES INDUSTRIALS Friday, Jan 12, 1990 MARKETS AT A GLANCE: DOW 30: -71.46 2,689.21 NYSE: -4.46 188.32 AMEX: -7.12 372.23 NASDAQ: -9.14 439.72 WILSHIRE: -77.145 3,300.590 S&P; 500: -8.60 339.93 SELECTED INTEREST RATES; Source: Federal Resreve Board
