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Bond Prices End Higher in Extremely Slow Trading

May 1, 1992

NEW YORK (AP) _ Bond prices strengthened Friday and short-term interest rates dropped on weaker-than-expected growth in the nation’s manufacturing industries, raising the possibility of another Federal Reserve ease in credit.

Trading slowed to a crawl by early afternoon, as many of the large Wall Street investment houses and broker-dealers dismissed employees early out fear of spreading urban unrest stemming from the Rodney King police brutality verdict in Los Angeles.

The Treasury’s key 30-year issue ended up 3/8 point or $3.75 per $1,000 in face amount. Its yield, which falls when the price advances, eased to 8 percent from 8.03 percent late Thursday.

Bond market strategists said the major reason for the advance was a monthly report by the National Association of Purchasing Management that showed a slowdown in the expansion of U.S. manufacturing in April.

″The report was surprisingly weak,″ said Douglas McCallister, government bond strategist at Prudential Securities Inc. in New York. ″It shows the economy is still expanding, but not as much as originally thought.″

The market had been expecting much greater strength in the purchasing managers’ data, consistent with other recent signs of economic vitality that have suggested the nation is climbing out of a prolonged economic slump.

″What I think just happened is that you have ambiguity introduced into the situation,″ said Giulio Martini, an economist at Sanford C. Bernstein & Co., a New York investment firm.

A manufacturing slowdown could ripple through the broader economy in coming months with declines in exports, production and employment, forcing the Federal Reserve to take further steps to stimulate growth through lower interest rates. That would tend to strengthen the bond market.

Still, some economists said bond prices remained vulnerable to abrupt declines, particularly next week, when the Treasury will conduct a quarterly refunding auction that could glut the market with a new supply of debt.

In the secondary market for Treasury bonds, short-term maturities rose 3-16 point, intermediate maturities rose 9-16 point and long-term issues rose point, the Telerate Inc. financial information service reported.

The movement of a point equals a $10 change in the price of a bond with a $1,000 face value.

The Lehman Brothers Daily Treasury Bond Index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, was unavailable because of Lehman’s abrupt early close on Friday.

Yields on three-month Treasury bills fell to 3.69 percent percent as the discount fell 7 basis points to 6.62 percent. Yields on six-month bills fell to 3.85 percent as the discount fell 8 basis points to 3.74 percent. Yields on one-year bills fell to 4.28 percent as the discount fell 10 basis points to 4.10 percent.

A basis point is one-hundredth of a percentage point. The yield is the annualized return on an investment in a Treasury bill. The discount is the percentage that bills are selling below the face value, paid at maturity.

The federal funds rate, the interest on overnight loans between banks, was quotedd at 3 5/8 percent, down from 313-16 percent late Thursday.

In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds rose to 95, up 1-32 point. The average yield to maturity fell to 6.72 percent from 6.74 percent late Thursday.