What would the administration's anti-inflation program be? That question paralyzed the markets throughout the week. Traders hung on every piece of information that filtered out of Washington. And bond prices gyrated accordingly. Wide price swings were commonplace in each day's trading.
The administration's program was basically promulgated to soothe Wall Street. Since the end of January, the Street was in a panic state. The capital markets had ceased to function properly, interest rates were skyrocketing, loses abounded and red ink flowed everywhere. This chaotic condition necessitated action from the government, which after all is the heartbeat of inflation.
Because the president's program was released after the close of the markets on Friday, we will have to wait until at least Monday to see how the progam will be received. But one thing is certain: If the investment community preceives that the program has bite and will assist the inflation battle, the bond markets will do well. If the program is considered weak, the market will sell off.
During the past week, the market seemed to look past the anti-inflation program and focus on the end result of such high interest rates. The end result, it is hoped, would be curtailment of inflation and a stronger market. The bond markets seem to want to rally in the worst way, but the uncertainty of the president's message kept the market in harness.
Activity in the secondary markets was minimal; however, the issues marketed last week were well received. The center of attraction had to be the $300 million State of Oregon general obligation issue. These bonds, rated AAA/AA+ ordinarily would sell 20 to 30 basis points cheaper than a good state name like Wisconsin. (A basis point is one one-hundredth of a percentage point.) Because of the size of the issue and because Oregon is a frequent visitor to the marketplace, the issue sold 50 to 80 basis points cheaper than an issue like Wisconsin. And it sold well.
A couple of single-family housing tax-exempts returned double-digit yields of 10 percent and 10-1/2 percent. An A-rated 3-year pollution-control revenue issue returned 9-1/2 percent. However, the $1.5 billion government-backed project notes were postponed until March 25.
In the taxable area, a triple-A, 30-year utility returned 14.20 percent, while a long single-A utility returned 14.95 percent. Five-year and seven-year paper returned anywhere from 14 percent to 14-3/4 percent.
Six-month "unit investment trusts" are being offered weekly with yields above 16-1/2 percent. Their cost is right around $1,000 a unit.
This Thursday the Treasury will offer a 2-year note in minimum denominations of $5,000. A price guesstimate would be between 14.80 percent and 14.90 percent unless the Fed raises the discount rate before the sale. Then the rate could be more than 15 percent.