The fixed-income markets faltered at the beginning of the week, then gathered strength and made one final assault to set new price levels for 1979.
In its final effort, spurred by Morgan Guaranty Bank's unexpected lowering of the prime rate, the corporate market swept up every new issue in its path. Each succeeding new issue was priced with lower returns as the avalanche of money poured into the marketplace.
With signs of a weakening economy, the huge pools of reserves were plunged into the markets seeking bonds. This was the main impetus behind the rally.
By Wednesday evening, buyers began asking themselves why they were purchasing bonds with yields at least half a point less than a few weeks before. This was a legitimate question because inflation, as measured by the consumer price index, still was running at 13 percent.
In fact, the market had moved so sharply the Fedeal Reserve's lowering of the federal funds rate was needed to justify such a move. But with mixed signals coming from the economy and with a fear that easing credit now would worsen inflation, the Fed was not about to lower the rate.
This, of course, put the rally in jeopardy. The monetary aggregates released Thursday evening showed the largest increases on record. That was enough to knock the market down from its lofty heights.
The rally is more than likely over for now, and rates should meander higher over the summer. Individuals who missed the highs yields of April and early May should keep in mind how high yields were then, and how fast and how low they fell in one month.
As rates back up and move higher, investors should begin to commit a portion of their reserves.
The Treasury will offer a two-year note Tuesday and a four-year note Thursday. The two-year will come in minimum denominations of $5,000; the four-year, $1,000. These notes will be made available for bidding at the U.S. Treasury here, the Federal Reserve banks or one of their branches. Price guess-timates would be 9.23 percent to 9.33 percent for the two-year and 8.73 percent to 8.83 percent for the four-year.(TABLE) (COLUMN)Week of 6/15(COLUMN)Week of 6/8 6 Mos. U.S. Treasury Bill (coupon eq. yield)(COLUMN)9.66%(COLUMN)9.73% 1 Yr. U.S. Treasury Bill (coupon eq. yield)(COLUMN)9.63%(COLUMN)9.54% 2 Yr. U.S. Treasury Note(COLUMN)9.24%(COLUMN)9.25% 10 Yr. U.S. Treasury Note 9 1/4% 5/15/89(COLUMN)8.95%(COLUMN)8.90% 30 Yr. U.S. Treasury Bond 9 1/8% 5/15/09(COLUMN)8.90%(COLUMN)8.90% New AA Long Public Utility Bonds(COLUMN)9.75%(COLUMN)9.75% Bond Buyer 20 Bond Index(COLUMN)6.11%(COLUMN)6.09% 30 Day Muni. Supply + Blue List Volume(COLUMN)$2.91 billion(COLUMN)3.17 billion 30 Day Corp. Bond Calendar(COLUMN)$.51 billion(COLUMN)1.51 billion(END TABLE)