Futures Markets: Rate Contracts Plunge On Inflation Worries, Rise in Federal Funds --- A Wall Street Journal News Roundup
Interest-rate futures plummeted in response to a relatively high federal funds rate and continued fears of higher inflation.</br></br>The rate on federal funds, the reserves banks lend one another overnight, rose as high as 10 1/2% during the trading session. The rate could rise about 11% later this week as the Treasury Department transfers tax receipts from its accounts into the Federal Reserve System, draining reserves from commercial banking, some analysts said.</br></br>Many traders feared the federal funds rate may be "prohibitively high" all week, analysts said.</br></br>Some traders sold contracts in response to a government report that showed the nation's factories, utilities and mines operated at a seasonally adjusted 80.9% of capacity in March. "Anytime capacity is over 80%, that leads to fears of higher inflation," said Gary Dorsch, analyst with Rouse Woodstock Inc. "If businesses need to expand and buy new equipment, private credit demand intensifies, and there's upward pressure on capital-goods prices."</br></br>Late in the session, buying by commercial houses lifted prices slightly, analysts said. Some traders bought contracts to even up positions and withdraw from the market before the release of several government reports due this week on housing starts, personal income and the gross national product.