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Bonds post modest dip

May 6, 1997

NEW YORK (AP) _ Bond prices fell Tuesday after six straight days of gains as the dollar dipped and an auction of three-year Treasury notes drew limited interest.

The price of the Treasury’s main 30-year bond fell 5/32 point, or $1.56 cents per $1,000 in face value. Its yield rose to 6.89 percent from 6.87 percent late Monday. Prices and yields move in opposite directions.

Bonds descended as the dollar fell sharply after a senior Bundesbank official called the U.S. currency overvalued.

Ernst Welteke, a member of the Bundesbank’s policy-making council, told reporters in Germany that if the dollar exceeded its range of 1.7200-1.7350 marks, ``we wouldn’t be enthused.″ He said a rate of around 1.7000 marks was more consistent with economic fundamentals.

``The important factor was the dollar″ in moving the bond market, said Sung Won Sohn of Norwest Corp. ``Dollar depreciation means fewer foreign investors in Treasury markets.″

Following Tuesday’s auction of $17 billion in Treasury notes, yields on three-year notes rose to the highest level in more than two years. Bids totaled $35.4 billion.

The average yield was 6.438 percent, up from 5.997 percent at the last auction on Feb. 11. It was the highest rate since three-year notes sold for 7.34 percent on Feb. 7, 1995.

``It was kind of a weak auction,″ said Anthony Chan, vice president and chief economist at Banc One Investment Advisors in Columbus, Ohio.

Inflation-wary investors benefited from a report showing orders to U.S. factories declined in March for the first time in seven months, suggesting economic growth soon will moderate to a pace unlikely to aggravate inflation.

The 1.6 percent drop to a seasonally adjusted $319.2 billion ended an otherwise strong first quarter. Orders are considered a reliable barometer of future production levels

As recently as a few weeks ago, nearly all economists expected Federal Reserve policy-makers to nudge interest rates a quarter-point higher when they next meet on May 20. The Fed raised rates by that amount on March 25 in an attempt to forestall an acceleration of inflation.

The betting is not as sure now.

In the broader market, prices of short-term Treasury securities fell 1/16 point and intermediate maturities fell 3/32 to 1/8 point, reported Dow Jones Markets, a financial information service.

The Lehman Brothers Daily Treasury Bond Index, reflecting price movements on bonds with maturities of a year or longer, fell to 1,228.99, from 1,229.92 late Monday.

Yields on three-month Treasury bills fell to 5.17 percent as the discount fell 0.10 percentage point from Monday’s auction to 5.04 percent. Six-month yields fell to 5.55 as the discount fell 0.03 percentage point from the weekly auction to 5.34 percent. One-year yields rose to 5.87 percent as the discount rose 0.02 percentage point from late Monday to 5.56 percent.

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

The federal funds rate, the interest on overnight loans between banks, rose to 5.50 percent from 5.38 percent late Friday.

In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds rose 115 1/2, from 115 7/32 late Monday. The average yield to maturity dropped to 5.86 percent, from 5.87 percent late Monday.

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