Treasury bond prices ended moderately higher Friday, partly recovering from a day-earlier plunge as fixed-income players unwound speculative investments ahead of the holiday weekend.
Analysts tied little significance to the modest advance, which came after a slide in prices early Friday that initially furthered Thursday's market drop.Bond-department desks were thinly staffed on the last full trading day before Federal Reserve officials meet Wednesday to set monetary policy, ending weeks of speculation over whether they will cut interest rates to stimulate the economy. Many traders were said to have left early.
The price of the Treasury's main 30-year bond, down in early trading, ended up 9/32 point, or $2.81 per $1,000 in face value. Its yield, which moves in the opposite direction from price, eased to 6.62 percent from 6.64 percent late Thursday.
On Thursday, the bond's price dropped by 1 27/32 points, its biggest daily decline since May 1994, after the Commerce Department reported that new homes sales surged 20 percent in May.
The news dashed hopes for an imminent cut in interest rates by the Fed, a move that would improve the value of bonds already in circulation.
The already-dim hopes were further eroded Friday by a report of a May rebound in factory orders, which surged 1.4 percent after three straight declines. In addition, the June consumer sentiment index as measured by the University of Michigan increased to 92.7 from the 92.3 reading.
But other news Friday seemed to conflict with the notion of an improving economy. The Commerce Department said that gross domestic product grew at a 2.7 percent annual rate in the first three months of 1995, barely more than half the pace of expansion in the previous quarter. The first quarter rate was unchanged from a month-old estimate.
That was the weakest performance in a year and a half.
Market participants tied bond prices' late-day advance to a reversal of speculative positions by traders who had bet on a decline in bond prices.
Prior to Thursday's price plunge, traders anticipating the trend borrowed bonds and sold them immediately on the hope that prices would decline. When prices declined further Friday, these traders bought bonds at the cheaper prices, paid off their loans and pocketed the price difference in a process called short selling.
The speculative trades exaggerated the price action in a lightly traded market. Activity ends early on Monday, the day before July 4.
Short-term Treasury securities ranged from 1/8 point to 3/16 point higher and intermediate maturities ranged from 9/32 point to 5/16 point higher, reported Dow Jones Telerate Inc., a financial information service.