Bond Prices Surge
NEW YORK (AP) _ Bond prices roared higher Thursday as traders anticipated that the Federal Reserve Board would encourage lower interest rates in a bid to avert a recession.
The Treasury’s bellwether 30-year bond climbed 1 3/4 points, or about $17.50 for every $1,000 in face value, and its yield fell to 8.77 percent from 8.93 percent late Wednesday.
The Reagan administration expressed its determination Thursday to keep the United States out of a recession by fostering lower interest rates.
That encouraged speculation that Federal Reserve was preparing to slash its discount rate, its interest charge on loans to banks.
Meanwhile, major U.S. banks cut their prime lending rates another quarter percentage point to 8.75 percent Thursday, and the West German and Swiss central banks said they were cutting key interest rates a day after Britain made a similar move.
The bond price advance came even as the Treasury completed its $23.8 billion sale of new securities, auctioning $4.78 billion in 30-year bonds.
The average yield on the bonds was 8.79 percent, down from 8.89 percent at the last auction on Aug. 13 and the lowest rate since 30-year bonds averaged 8.76 percent on May 7.
Elliott Platt, a fixed-income research director for Donaldson Lufkin & Jenrette Inc., said the speculation about the direction of U.S. interest rates has overridden earlier concerns about declines in the dollar.
In the secondary market for Treasury bonds, prices of short-term government issues were up 10-32 point, intermediate maturities were up 1/2 point and 20-year issues rose 1 1/2 points, according to the investment firm Salomon Brothers Inc.
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 Merrill Lynch Treasury Bond index, which reflects price movements on outstanding Treasury bonds, rose 0.89 to 111.22. The Shearson Lehman Treasury Bond index, which makes a similar measurement, rose 8.55 to 1,163.81.
Yields on three-month Treasury bills, meanwhile, rose 10 basis points to 5.62 percent and six-month bills rose 4 basis points to 6.04 percent, while one-year bills fell 4 basis points to 6.34 percent. A basis point is a hundredth of a percentage point.
In the corporate bond market, industrials rose 3/4 point and utilities were up 1/2 point in light activity, Salomon Brothers said.
The federal funds rate, the interest banks charge each other on overnight loans, was quoted at 6 5/8 percent, up from 6 percent late Wednesday.