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Bonds Fall on Inflation Fears

November 10, 1999

NEW YORK (AP) _ Bond prices fell for a third straight session Wednesday, after a larger-than-expected rise in certain producer prices sparked fears the Federal Reserve will raise interest rates next week.

The price of the benchmark 30-year Treasury bond fell 1/4 point, or $2.50 per $1,000 in face value. Its yield, which moves in the opposite direction, rose to 6.09 percent from Tuesday’s rate of 6.07 percent.

Treasurys sank after the Labor Department said October producer prices climbed 0.3 percent when volatile food and energy prices are excluded, exceeding economists’ expectations for a 0.1 percent gain.

A higher-than-expected increase in the key inflation gauge signaled that inflation is rising and provide grist for those investors who believe the Fed will increase interest rates for a third time this year.

Higher interest rates hurt bonds investors because bonds pay a fixed rate of return.

In the broader market, prices of short-term Treasury securities fell 1/16 point to 1/8 point, and intermediate maturities fell 5/32 point to 3/16 point, reported Bridge Telerate, a financial information service.

Yields on three-month Treasury bills were 5.19 percent, as the discount rose 0.01 percentage point from Tuesday to 5.05 percent. Six-month yields were 5.39 percent, as the discount rose 0.03 percentage point from Tuesday to 5.17 percent.

One-year yields were 5.48 percent as the discount rose by 0.02 percentage point from late Tuesday’s auction price to 5.19 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 5.25 percent from Tuesday’s 5.19 percent.

In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds fell 5/16 to 110 15/32. The average yield to maturity rose to 6.02 from 6.00 percent on Tuesday.

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