Long-term Treasury bonds take a steep drop in price Shorter maturities fall, too, as stock market rises



NEW YORK -- With the stock market soaring on the possibility of an interest-rate cut by the Federal Reserve, the price of long-term Treasury securities dropped significantly yesterday, while shorter maturities were down a little.

Bonds have been strong lately as investors fled the turmoil in global stock markets, but that appears to have changed since the chairman of the Fed, Alan Greenspan, said on Friday that the Fed might consider lowering interest rates if the global financial crisis continued to worsen.

Maury Harris, chief economist at PaineWebber Inc., interpreted Greenspan's remarks as positive confirmation for eventual Fed easing of the current 5.5 percent federal funds rate, which banks charge each other for overnight loans.

"Most importantly, he strongly implied that at its last Federal Open Market Committee meeting on Aug. 18 the Fed probably abandoned its policy directive with a tightening bias in favor of an unbiased directive, a leading indicator of past easing at the Greenspan Fed," Harris said.

He also cited benign labor costs, which has been one of Paine Webber's key markers for eventual Fed easing.

The price of the 30-year Treasury bond dropped $1.2875, to $102.6250.

The long bond's yield, which moves in the opposite direction from the price, increased to 5.36 percent, from 5.28 percent on Friday.

The nation's markets were closed on Monday in observance of the Labor Day holiday.

For investors, the loss amounted to about $11.88 per $1,000 of bonds held.

Pub Date: 9/09/98

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