Bond Prices Sink As Japan Is Said To Boost Rates --- Treasury Securities, Futures Drop Amid Predictions Of Higher Fees in U.S.
NEW YORK -- A report that the Bank of Japan is tightening credit to curb inflation pressure rocked the credit markets as prices of Treasury bonds, financial futures and other debt securities sank.</br></br>"If the Japanese are serious about this, the only way for U.S. rates to go is up," said Steven A. Wood, an economist at Bank of America, San Francisco. "And there is ample evidence to believe they are, which is why support in the bond market suddenly collapsed. We are so dependent on foreigners to finance our deficits that if the Japanese raise their rates, ours will have to rise as well just to maintain an attractive differential," Mr. Wood said.</br></br>The Treasury declined to comment on the report that the Bank of Japan is tightening monetary policy. Prices of actively traded 30-year government bonds fell more than 1 1/4 points yesterday, or over $12.50 for each $1,000 face amount. The yield on the latest 30-year Treasury issue climbed to 9.69%, matching the highest level for this year, which also was the highest since mid-December 1985, according to Shearson Lehman Brothers Inc.</br></br>Many corporate and municipal securities also slumped. At the Chicago Board of Trade, where traders reported a late afternoon wave of sell orders from customers, Treasury bonds for delivery in December settled more than a point lower.</br></br>Earlier this week, Bank of Japan Governor Satoshi Sumita indicated at a meeting of insurance company executives that the central bank is shifting its credit stance amid signs of rising inflation. Yesterday, a news service of Nihon Keizai Shimbun Inc. cited government officials saying they planned to limit the growth of commercial bank lending and allow short-term interest rates to move higher.