CREDIT : Bond Prices Fall on News of Treasury Sale
Bond prices declined slightly Wednesday on fundamentals and to a lesser extent because of the first reports of large-scale ground battles between allied and Iraqi troops.
The Treasury’s bellwether 30-year bond edged down 3/16 point, or $1.88 per $1,000 in face amount, at closing Wednesday. Its yield, which moves in the opposite direction of price, rose to 8.21% from 8.20% late Tuesday.
The U.S. Treasury on Wednesday announced plans to borrow $34.5 billion from the public next week, a record for any quarterly borrowing, in a series of debt auctions to replenish the government’s coffers.
Bond traders, anticipating the afternoon announcement would drive down prices, sold off bonds throughout the day, analysts said.
Chase Manhattan Corp. economist Jan Hurley said the price decline was “totally supply-driven trading” prior to the Treasury announcement.
Hurley said the market appeared to ignore news of falling oil prices and December’s 0.1% increase in the government’s chief economic forecasting gauge. The rise in the index of leading economic indicators was the first gain in six months and suggested the current recession would be mild, analysts said.
The bond market only reacted slightly to word of ground fighting in the Gulf War.
The federal funds rate, the interest on overnight loans between banks, rose to 6.675%, up from 6% late Monday.
Currency
The dollar staged a moderate advance on speculation that the Persian Gulf conflict was shifting from an air to a ground war. But the currency meandered lower as the market’s recent numbness to war events once again crept in.
The dollar fell to 1.4880 German marks, down from 1.4966 marks at Tuesday’s close, and to 131.10 Japanese yen, down from Tuesday’s 132.14 yen. The British pound fetched $1.9630, more than $1.9585 of late Tuesday.
Currency analysts said traders sought the dollar’s safety following news that Iraqi tank soldiers mounted the first major ground assault of the two-week-old war.
However, “as it became clear that it wasn’t a full-scale ground war, just a limited attack in which the U.S. came out pretty well, everything pretty much reversed,” said Greg Jones, a market analyst for MMS International.
Other late dollar rates in New York, compared to late Tuesday’s, included: 1.2625 Swiss francs, down from 1.2675; 5.0490 French francs, down from 5.0790; 1,115.50 Italian lire, down from 1,122.75, and 1.1604 Canadian dollars, down from 1.1611.
Commodities
Gold prices tumbled as Persian Gulf peace hopes rose after U.S. and Soviet leaders demanded Iraq’s withdrawal from Kuwait and reports suggested that allied troops were winning the war’s first major ground battle.
On other commodity markets, oil futures also fell; grains and soybeans were mostly lower, livestock futures rose and pork bellies retreated.
Gold futures settled $7.60 to $8 lower on New York’s Commodity Exchange, with the contract for February delivery at $368.80 an ounce; silver was 3.9 to 4.2 cents lower, with February $3.805 an ounce.
Platinum finished $4.70 to $5 lower on the New York Mercantile Exchange, with April at $382.50 an ounce.
Gold opened sharply lower, following overseas markets, in reaction to news late Tuesday of a U.S.-Soviet statement declaring a cease-fire would be possible if Iraq made “an unequivocal commitment” to withdraw all its troops from Kuwait and took “concrete steps” in that direction, analysts said.
The White House said the statement reflected no change in U.S. policy but traders perceived the statement as a new peace initiative, said Bette Raptopoulos, senior metals analyst with Prudential-Bache Securities Inc. in New York.
“That was probably a key factor,” in the selloff, she said.
Crude oil futures fell sharply on the New York Mercantile Exchange, also largely in reaction to the Gulf developments.
Light sweet crude oil finished 60 to 88 cents lower, with March at $20.97 a barrel. Market Roundup, D6
