Most Debt Issues End Narrowly Mixed As Many Big Investors Sit Out Session
Prices of most debt securities were narrowly mixed in quiet trading as many of the biggest investors in the credit markets remained inactive, convinced that interest rates will climb further.</br></br>Prices of some long-term government bonds fell just under 1/4 point, or less than $2.50 for each $1,000 face amount, in dull trading. Shorter-term issues rose as some benchmark short-term interest rates eased. Prices of corporate, municipal and mortgage bonds also were little changed.</br></br>"Yes, I'm one of the gloomy ones," said Peter Hegel, who manages $6.5 billion of fixed-income funds as chief investment officer at Lisle, Ill.-based Van Kampen Merritt Inc. "We've been fairly negative since the beginning of the summer," keeping the duration of the firm's bond portfolios shorter than most benchmark market indices, he said. A shorter duration reduces the risk of capital losses in a bear market.</br></br>"Unlike earlier in the expansion, we now have capacity constraints in the economy, and we're seeing the first rumblings of inflation," Mr. Hegel said. As a result, he predicted that the yield on the government's most recently issued 30-year bond could climb to 10% in the months ahead from just over 9.40%. "I'll become bullish when I start to see signs that economy is slowing down," he added.</br></br>A few economists say that's already happening. David Bostian, head of Bostian Research Associates Inc., for instance, predicts long-term Treasury yields will be less than 8% by year's end because he says the economy has peaked.