Washington -- A 3/4 point hike in short-term interest rates by the Federal Reserve yesterday failed to do much for Treasury bond prices, as bill and more prices sank.
Exceeding many analysts' expectations, Fed officials raised the federal funds are to 5.50% from 4.75% and the discount rate to 4.75% from 4.00%, citing "persistent strength in economic activity and high and rising levels of resource utilization.
The long bond initially rallied on the news, rising about 3/4 of a point, but by late afternoon 30-year bond were quoted up a slim four ticks at a price of 93 21/32, with a yield of 8.06%
The 10-year bond fell 6/32 to 99 16/32, with a yield of 7.94%. The rest of the yield curve also deterioted. Yields on both three- and six-month bills in late trading were up 10 basis points at 5.54% and 6.05%, respectively.
Eugene Sherman, director of research at M.A. Schapiro & Co., said he was a little surprised that bonds did not react more favorably to the credit tightening -- the sixth this year. "I'm not sure why bonds didn't do more," he said, predicting that bond prices may rise in the near term.
On the other hand, Kim Rupert, senior economist at MMS International, predicted that bond prices are likely to slip in the short term as the market continues to make more out of the bad news about the threat of future inflation than the good news.
Fed actions notwithstanding, the tone of the market will remain bearish until it sees concrete evidence that economic growth is slowing substantially, she said.Treasury Market Yields Previous Previous Tuesday Week Month3-Month Bill 5.52 5.35 5.036-Month Bill 6.03 5.87 5.541-Year Bill 6.56 6.32 6.042-Year Note 7.08 7.01 6.583-Year Note 7.39 7.28 6.875-Year Note 7.68 7.67 7.297-Year Note 7.78 7.82 7.4710-Year Note 7.90 7.97 7.6630-Year Bond 8.04 8.12 7.88Source: Cantor, Fitzgerald / Telerate
Stock Market: The Dow Jones Industrial Average fell 3.37 points yesterday, to close at 3826.36
Foreign Exchange: In late New York trading yesterday, the dollar was quoted at 98.67 Japanese yen and 1.5562 German marks.
Commodities: The Commodity Research Bureau's index closed up 0.48 point yesterday, at 233.74.