Bond Prices Rebound in Dull Trading As Some Short-Term Interest Rates Fall
NEW YORK -- Bond prices rebounded yesterday as some key short-term interest rates declined.</br></br>A drop in the closely watched interest rate on federal funds helped calm fears that the Federal Reserve System is tightening its credit hold further. Still, trading activity was lackluster amid continued concern that rapid money-supply growth soon will force the Fed to tighten credit conditions, pushing up interest rates.</br></br>The funds rate, which is the rate on reserves that banks lend one another overnight, hovered around 8.5% for much of the session. That was down from Monday's average of 8.73% and Friday's average of 8.74%.</br></br>Prices of some Treasury bonds rose more than 1/2 point, or over $5 for each $1,000 face amount. Even so, these issues are about five points below their levels of less than three weeks ago. Yields on actively traded 30-year Treasury bonds have jumped to just over 11.75% from less than 11.25% Feb. 14.</br></br>"Bond investors are confused and concerned about Fed policy," said Lawrence N. Leuzzi, vice president and economist at E.F. Hutton & Co. He contended that the Fed's actions in the past several days "indicate that it is being more cautious" in providing reserves to the banking system.