Bond Prices Rise as Dollar Climbs, Oil Price Drops
NEW YORK (AP) _ Government bond prices rose Friday, boosted by a runup in the value of the dollar and a drop in oil prices, traders and analysts said.
The price of the Treasury’s bellwether 30-year bond climbed 11-16 point, or about $6.88 per $1,000 in face amount. Its yield, which falls when the bond’s price rises, slipped to 8.75 percent from 8.81 percent late Thursday.
Bond prices opened higher, following a rise on overseas markets. Bonds were boosted abroad by a dip in oil prices, said William Pike, a managing director in the government bond-trading department of Manufacturers Hanover Trust Co.
The bond market has closely tracked oil prices since Iraq’s Aug. 2 invasion of Kuwait. The oil price rise has fueled fears of increasing inflation, which reduces the value of fixed-return securities such as bonds.
On the New York Mercantile Exchange, the November contract for the benchmark grade of oil fell $3.01 a barrel to settle at $33.79. Oil prices fell amid signs of good supplies and slackened demand, as well as indications that Iraq may be willing to negotiate a pullout from Kuwait.
Bond prices also were boosted by a jump in the value of the dollar in foreign exchange, said Steven R. Ricchiuto, chief economist at Barclays de Zoete Wedd Securities Inc. A stronger dollar makes U.S. securities more attractive to global investors.
In addition, Ricchiuto said, the bond market was boosted by a report showing the economy continues to decline. The monthly index on regional industrial activity put out by the Federal Reserve Bank of Philadelphia fell to its fourth-lowest level ever last month, he said.
Signs of economic softening often boost bond prices because they make it more likely the Federal Reserve will ease interest rates.
Meanwhile, in the corporate bond market, prices of many high-yield ″junk″ bonds rose sharply, boosted by the overall rise in the bond market and a jump in stock prices. However, the rise did not erase the losses junk bonds have suffered in recent days.
In the secondary market for Treasury bonds, prices of short-term issues rose from 1/8 point to 9-32 point, intermediate-term issues rose 13-32 point to 23-32 point, and long-term issues rose as much as 3/4 point, according to Telerate Inc., a financial information service.
The movement of one point is equal to a change of $10 in the price of a bond with a $1,000 face value.
The Shearson Lehman Brothers Daily Treasury Bond Index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, rose 3.50 to 1,156.45.
Yields on three-month Treasury bills fell to 7.44 percent as the discount dropped 3 basis points to 7.22 percent. Yields on six-month bills fell to 7.54 percent as the discount dropped 1 basis point to 7.18 percent. Yields on one- year bills fell to 7.51 percent as the discount slipped 5 basis points to 7.04 percent.
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 7 13-16 percent, down from 7 15-16 percent late Thursday.
In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds rose 8-32 point to 88 22-32. The average yield to maturity fell to 7.77 percent from 7.79 percent late Thursday.