Bond Prices Tumble as Dollar's Plunge Prompts Additional Fears on Inflation
NEW YORK -- A sharp decline in the dollar prompted another round of inflationary fears in the credit markets yesterday as bond prices tumbled.</br></br>"If you had to sum it up in one word, the word is currency," said William M. Brachfeld, executive vice president at Daiwa Securities America Inc. In the Treasury bond market, "we had a sell-off on our hands" as the slump in the dollar continued.</br></br>Recent economic reports indicating a widening U.S. trade deficit "were sufficiently negative that the dollar likely will decline" further in coming weeks to the lows reached last spring, said Charles Lieberman, a managing director at Manufacturers Hanover Securities Corp. "The weaker dollar and the perception that it will generate higher inflation is a problem for the bond market."</br></br>Prices of 30-year Treasury issues fell nearly 1 1/2 points, or almost $15 for each $1,000 face amount as yields on some long-term bonds approached 9%. Corporate and municipal securities also plummeted.</br></br>The dollar's slide also triggered a sell-off in the stock market where the Dow Jones Industrial Average declined nearly 46 points. Despite worries that a weakening dollar will exacerbate inflation pressure, "inflation likely will remain relatively subdued," said Mr. Lieberman.