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Bond Prices Little Changed in Listless Trading

July 26, 1996

NEW YORK (AP) _ Treasury bond prices were little changed in thin trading Friday as the market looked ahead to a flurry of economic data next week that is seen as an important clue to the direction of interest rates.

With no major economic news to trade on during the day, however, caution ahead of the reports left the market listless. The price of the Treasury’s main 30-year bond was unchanged, and its yield stood at Thursday’s level of 7.01 percent.

``It’s been very, very quiet,″ said Marilyn Schaja, money market economist at Donaldson, Lufkin & Jenrette Securities Corp. ``Basically, people are in a wait-and-see mode for next week.″

The Labor Department’s second-quarter report on employment costs, an early indicator of inflation, comes out on Tuesday and a host of other data will follow throughout the week. On Friday comes the always-crucial monthly employment report.

Employment data have been closely watched in recent months, as the monthly reports provide one of the earliest and best indications of the economy’s strength. The July report should garner great attention.

``If the employment report is anywhere near as strong as the last employment report, I think the Fed moves,″ Schaja said. The economy created 239,000 jobs in June, far more than expected.

Market analysts, particularly given the June numbers, had expected the Federal Reserve to change course and raise interest rates at its next policy meeting on Aug. 20. The Fed increases rates to fight inflation, which is created by a fast-growing economy.

But following Fed Chairman Alan Greenspan’s recent testimony before Congress, the market has come to believe a rate increase at that meeting is not a sure thing and the Fed may let more time pass.

Higher rates tend to erode the value of existing bonds, which pay a fixed rate of return.

Prices of short-term Treasury securities fell 1-32 point to 1-16 point and intermediate maturities fell 1-32 point, reported Dow Jones Telerate Inc., a financial information service.

Yields on three-month Treasury bills stood at 5.28 percent as the discount was unchanged at 5.15 percent. Six-month yields rose to 5.50 percent as the discount rose 0.01 percentage point to 5.29 percent. One-year yields rose to 5.84 percent as the discount rose 0.01 point to 5.53 percent.

Yields are the interest bonds pay by maturity, while the discount is the interest at which they are sold.

The Lehman Brothers Daily Treasury Bond Index, reflecting price movements on bonds with maturities of a year or longer, stood unchanged at 1,226.25.

The federal funds rate, the interest on overnight loans between banks, was 5.25 percent, down from 5.63 percent late Thursday.

In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds closed at 114 3/8, down 1-32 from Thursday. The average yield to maturity was 5.99 percent, unchanged.

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