Long bond yield falls to record 6.70% close further drop forecast Slide laid to easing of inflation fears

June 26, 1993|By New York Times News Service

The yield on 30-year Treasury bonds closed at a record low of 6.70 percent yesterday amid widespread forecasts that the rate could drop further in coming weeks.

There has been no single catalyst for the steady decline in bond yields the last week, but investors and economists said yesterday that the accumulating evidence of a sluggish economy and low inflation seemed to have overpowered the fear of higher inflation that gripped the bond market just five weeks ago. As recently as May 21, the yield on the closely watched 30-year Treasury bond was 7.03 percent.

Yesterday's yield was the lowest close since the Treasury began regular auctions of 30-year bonds in 1977. The previous record low was 6.72 percent on April 15.

If bond yields decline further, as many now expect, it would provide additional support to an economy in which low interest rates have been one of the few bright spots.

Lower interest rates on Treasury bonds are quickly reflected in the housing market, where fixed-rate mortgages are now available at rates as low as 7.25 percent. With mortgage rates at levels not seen in 20 years and home prices not showing any signs of rising rapidly, Leland C. Brendsel, chairman of the Federal Home Loan Mortgage Corp., said that "it's a good time to be a homebuyer."

The strong demand for homes was reflected in yesterday's announcement by the National Association of Realtors that sales of previously owned homes surged 4.6 percent in May, the second straight monthly advance.

Corporations, which have been issuing bonds at a record rate this year, would also benefit from lower rates, which would enable them to repay old, high-interest debt and finance expansion more cheaply.

"All the ingredients of a rally are there," said Donald J. Fine, chief market analyst at Chase Securities. "Inflation is benign, and the economic statistics have been lackluster."

Looking ahead, he said, consumer prices for June could match the meager May increase of a tenth of a percent -- an announcement that touched off the most recent decline in bond yields.

By late yesterday, the 7 1/8 percent Treasury bonds due in 2023 were offered at a price of 105 14/32, a gain from Thursday of about 3/8 point.

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