FINANCIAL MARKETS : CREDIT : Bond Prices Tumble Over Interest Fears
In the credit market, bond prices took another drubbing, extending last week’s decline amid dashed hopes for a Federal Reserve move to reduce interest rates.
The Treasury’s benchmark 30-year bond lost 7/16 point, or $4.38 per $1,000 face amount, after skidding more than $11.25 on Friday. Its yield, which rises when prices fall, increased to 8.54% from 8.50% late Friday.
Friday’s sharp decline in bond prices followed release of June unemployment statistics that were not as weak as many analysts had expected.
The report dashed hopes for a quick move by the Fed to encourage lower interest rates to stimulate the economy. Falling rates would boost bond prices.
“The report effectively postponed an easing by the Fed for several more weeks,” said Gary Schlossberg, senior economist at Wells Fargo Bank in San Francisco. “I don’t see anything out there that would prompt an easing in the foreseeable future.”
On Monday, the government provided more evidence of unexpected economic strength, saying Americans took out $3.9 billion more in consumer credit than they paid off in May. That was well above expectations and 10 times the $390-million growth reported in April.
Analysts said worries about the market’s ability to absorb $31 billion in new securities being auctioned this week also weighed on bond prices.
The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 8.25%, the same as late Friday.
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