FINANCIAL MARKETS : CREDIT : Dollar’s Late Gains Cited in Bond Price Rise
Bond prices posted some modest gains in subdued trading, helped by signs of moderating inflation.
The Treasury’s benchmark 30-year bond rose 17/32 point, or $5.30 per $1,000 face amount, after losing $6.25 on Friday. Its yield fell to 8.62% from 8.66% Friday.
The financial markets were closed Monday for the Memorial Day holiday.
William Griggs, a partner in the investment firm Griggs & Santow Inc. in New York, cited some late strength in the dollar and a sharp decline in commodities prices for the bond price rally.
“The market seemed to be in a better mood all day,” Griggs said.
The dollar finished below last Friday’s closing levels in New York but strengthened as trading came to a close for the day. A stronger dollar makes returns on Treasury securities more attractive to foreign investors, who have been major players in the U.S. securities markets in recent years.
Griggs also said a key commodity price futures index posted a big decline, suggesting that inflation is not accelerating. Inflation erodes the value of fixed-income securities such as notes and bonds.
In the secondary market for Treasury bonds, prices of short-term governments rose 1/8 point, intermediate maturities rose 1/8 to 5/16 point and long-term issues rose as much as 17/32 point, according to Telerate Inc., a financial data service.
The movement of a point equals a change of $10 in the price of a $1,000 bond.
In secondary trading of Treasury bills already in the market, yields on three-month bills held at 7.99% as the discount stood at 7.74%. Yields on six-month bills fell to 8.14% as the discount fell 1 basis point to 7.73%. Yields on one-year bills slipped to 8.20% as the discount fell 1 basis point to 7.65%.
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 rate banks charge each other on overnight loans, was quoted at 8.25%, down from 8.313% late Friday.
CURRENCY Dollar Advances on Yen; Gold Mixed The dollar closed higher against the Japanese yen, recapturing some of the ground lost during last week’s sharp drop on technically guided selling.
It fell against the West German mark and the Swiss franc on the belief that no new snags will turn up in the planned monetary unification of East and West Germany.
Foreign exchange dealers said that trading in the dollar was uneventful and that interest probably would not perk up before the release Friday of U.S. unemployment data for May.
Speculation about possible developments at the summit that begins Thursday between President Bush and Soviet President Mikhail S. Gorbachev kept some currency dealers on the sidelines.
“It was generally a quiet day today with the dollar climbing back from its overnight selloff,” said Marc Chandler, currency analyst at MMS International in Chicago. “U.S. dealers took advantage of the dip in the dollar to re-establish long positions.”
The dollar weakened in European trading. Markets in the United States and Britain were closed Monday for a holiday.
“I think the market’s taking stock after the holidays,” said Andrew Elliott, international foreign exchange salesman at Chase Manhattan Bank in London.
Gold prices ended with minor losses in domestic trading after posting scattered gains overseas.
In London, gold rose to a late bid of $367.60 an ounce from $367.45 late Friday. Monday was a holiday in Britain. In Zurich, gold was unchanged from Monday’s closing bid of $367.50.
Earlier, in Hong Kong, gold rose 56 cents to close at $369.48 bid.
COMMODITIES Labor Pact Blamed for Copper’s Slides Prices of copper futures plunged on New York’s Commodity Exchange as traders reacted to a labor accord reached last week between Kennecott Corp. and its workers.
On other markets, grain and soybean futures were mostly lower, livestock and pork futures were higher and energy futures gained.
Last week’s agreement between Kennecott and the United Steelworkers union, which represents the mining company’s workers, proved to be a drag on copper futures.
Copper settled 2.10 to 4.10 cents lower, with the contract for delivery in May at $1.1585 a pound.
It had been feared that a dispute over wages and benefits could result in strikes in the copper industry, said Jim Steel, an analyst with Refco Inc. in New York.
The union settlement reduced the possibility of supply disruptions had a contract agreement failed to materialize before the June 30 expiration of the previous contract, Steel said. The agreement makes it more likely that the other copper producers will reach accords with their unions, he said.
Grain and soybean futures were mostly lower on the Chicago Board of Trade.
Soybean prices fell sharply as professional selling set in during late trading. The demand for soybeans and soybean products has been negligible, said analyst Joel Karlin of Research Department Inc.
“What demand there has been is being supplied by sales in South America,” Karlin said.
He said soybean futures were also pressured by continued wet weather in the Midwest that has delayed corn planting. Forecasts have called for more rain later this week.
Karlin said traders are concerned that the longer corn planting is delayed, the more likely that the acreage given over to soybeans will increase. Corn takes longer than soybeans to mature.
The weather outlook offered some support to corn futures, as did scattered export business, Karlin said.
Wheat prices gained on ideas among traders that wheat had been oversold in recent sessions, analysts said.
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