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CREDIT : Economy-Inspired Bond Rally Rolls On

January 29, 1988|Associated Press

NEW YORK — Bond prices rose Thursday as they continued to get mileage out of economic figures released Wednesday.

The Treasury's bellwether 30-year issue picked up 9/16 point, or $5.625 per $1,000 face value, after rising nearly $20 on Wednesday. Its yield, which moves inversely to its price, fell to 8.48% from 8.53% late Wednesday.

Treasuries got their momentum from the Commerce Department's report Wednesday that the broadest measure of the nation's economic growth, the gross national product, grew at a rate of 4.2% in the final three months of 1987.

The rate was stronger than many analysts had expected, but the bond market focused on the fact that virtually all the growth resulted from swelling business inventories.

The build-up in inventories "seems to argue for slower growth in the coming quarters," said Nancy Vanden Houten, a money market economist for Merrill Lynch Capital Markets.

Bought on the News

Bond traders tend to buy on negative economic news on the theory that if the economy is slowing, the Federal Reserve Board will be less likely to nudge interest rates higher. Lower interest rates would mean higher bond prices.

The Commerce Department reported Thursday that Americans' after-tax incomes grew a sluggish 1.2% last year, and economists expressed concern that the weak showing would lead to a further slowdown in consumer spending and raise the possibility of a recession this year.

The market also continued to take heart from Wednesday's release of details about the coming Treasury refunding auction, Vanden Houten said.

The Treasury said it would sell $27 billion in notes, less than the $28 billion borrowed at the last major refunding in August. That means a shorter supply of bonds.

In the secondary market for Treasury bonds, prices of short-term government issues rose 3/32 point, intermediate maturities ranged 1/8 point to 5/32 point higher and 20-year issues rose 17/32 point, according to Telerate Inc., a financial information service.

The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.

Corporates Advance

The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, closed up 0.21 to 113.09. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, was up 2.32 at 1,182.74.

In corporate trading, industrials and utilities rose point in active trading, according to the investment firm Salomon Bros.

Among tax-exempt municipal bonds, general obligations were unchanged and revenue bonds were up about point, Merrill Lynch reported. Trading was active.

Yields on three-month Treasury bills, meanwhile, fell 6 basis points to 5.67%. Six-month bills declined 2 basis points to 6.05% and one-year bills slipped 3 basis points to 6.28%. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, was quoted at 6.75%, up from 6.50% late Wednesday.

Tables, Page 9

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