Futures Markets: Bond Contracts Soar for Third Day On Move by Fed
Treasury bond futures prices soared for the third consecutive day, setting life-of-contract highs after the Federal Reserve System unexpectedly injected permanent funds into the banking system.</br></br>Some traders saw the Fed move as a precursor to a cut in the discount rate, the rate banks pay on borrowings from the Fed. In adding funds, the Fed purchased short-term Treasury bills through an overnight system repurchase agreement.</br></br>The ensuing buying frenzy led the December and March contracts to life-of-contract highs for the third day in a row. December and March-delivery Treasury notes and Government National Mortgage Association certificates also set contract highs in heavy trading.</br></br>The market "caught a real case of disco fever," said Norman Frey, an analyst with Northern Futures Corp., Chicago.</br></br>Some analysts were skeptical. The rate on federal funds, the reserves that member banks lend one another overnight, didn't drop dramatically in reaction to the Fed's action yesterday, they noted. The fed funds rate would normally drop if a discount rate cut were in the offing, they added; that implied the Fed's purchases were technical in nature, aimed only at adding necessary reserves to the banking system.