Bond Prices Surge Amid Expectations Of Oil-Price Cut by Producer Countries
NEW YORK -- The bond market rallied strongly yesterday amid growing speculation that petroleum-producing nations may cut oil prices soon.</br></br>Prices of some Treasury bonds surged more than a point, or more than $10 for each $1,000 face amount. Most short-term interest rates declined. Traders were "almost euphoric" as rumors of an impending oil-price reduction swirled through the credit markets, said Donald E. Maude, chief economist at Refco Partners.</br></br>Another cut in oil prices would give the Federal Reserve System additional latitude to ease credit conditions, paving the way for further declines in U.S. interest rates, according to many investment managers. They say an oil-price cut would enhance the prospects for continued low inflation.</br></br>After surveying oil-company executives, Petroleum Intelligence Weekly, an industry newsletter, concluded that oil prices "will remain weak or continue to slide" unless the Organization of Petroleum Exporting Countries takes "strong corrective action." A majority of executives surveyed said they expect a "virtually uninterrupted period of depressed demand" for oil over the next 18 months or more.</br></br>Even without a reduction in oil prices, many analysts expect lower interest rates. They say that the economy is picking up only moderately from its sluggish first-quarter performance and that the Fed will ease its credit policy further in an effort to stimulate business activity.