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Bond prices little changed amid concern about dollar and upcoming auctions

February 10, 1997

NEW YORK (AP) _ Bond prices were barely changed Monday as traders prepared for $40 billion in Treasury sales this week and awaited fresh news on inflation and the direction of the economy.

The price of the Treasury’s main 30-year bond dipped 1/32 point, or 31 cents per $1,000 in face value, while its yield rose to 6.70 percent from 6.69 percent late Friday, its lowest level since 6.64 percent on Dec. 31. Prices and yields move in opposite directions.

Prices were pressured in early trading by a drop in the dollar after the Group of Seven industrial nations suggested over the weekend that they don’t want the currency to appreciate further _ a view the United States recently seemed to support.

A decline in the dollar would make dollar-denominated investments, such as Treasury securities, less attractive to foreign investors. That thought was especially disturbing ahead of this week’s auctions.

``When you throw a monkey wrench in the equation you’ve got a recipe for a little nervousness,″ said Anthony Chan, chief economist at Banc One Investment Advisors in Columbus, Ohio. ``That’s the double whammy impact.″

The government plans to sell $17.75 billion in 3-year notes Tuesday, $12 billion in 10-year notes on Wednesday and $10 billion in 30-year bonds Thursday as part of its quarterly refunding.

But some concerns about demand for the new offerings were alleviated when the dollar recovered. Participants in both the foreign currency and bond markets also were satisfied that fundamentals supported a strong dollar.

There wasn’t any significant economic news Monday to reinforce other encouraging signs on inflation, which erodes the value of fixed-income investments such as bonds, and many traders remained on the sidelines.

Some traders said they were still optimistic that there wasn’t any immediate threat from inflation that would require the Federal Reserve to raise interest rates soon. But they still wanted further reassurance.

The market was looking forward the next round of economic numbers: reports this week on inflation at the wholesale level and retail sales figures for January. If the numbers are strong ``people could be pretty nervous,″ Chan said.

The numbers could be ``a hard dose of medicine to swallow″ if retail sales rise by more than 0.8 percent and the producer price index moves up by more than much more than 0.3 percent, Chan said.

Prices of short-term Treasuries were down 1/32 point, while intermediate securities ranged from unchanged to up 1/32 point, reported Dow Jones Telerate Inc., a financial information service.

The Lehman Brothers Daily Treasury Bond Index, reflecting price movements on bonds with maturities of a year or longer, fell 0.26 point to 1,246.66.

The yield on three-month Treasury bills was unchanged at 5.11 percent, as the discount remained steady at 4.99 percent. Six-month rose to 5.25 percent as the discount rate rose 0.01 percentage point to 5.06 percent. One-year yields rose to 5.48 percent, as the discount rose 0.01 percentage point to 5.20 percent.

The federal funds rate, the interest on overnight loans between banks was 5.19 percent, up from 5.06 percent late Friday.

In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds rose 3/32 point to 116 31/32. The average yield to maturity was unchanged from late Friday’s 5.75 percent.

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