Magazine article American Banker

Banks Cut Prime; Treasury Bond Prices Higher

Magazine article American Banker

Banks Cut Prime; Treasury Bond Prices Higher

Article excerpt

NEW YORK -- U.S. Treasury bond prices were sharply higher at mid-afternoon Thursday pending the Federal Reserve Board's weekly money supply report.

The gains, which marked a second straight day of sharply rising prices, came amid reports that major banks across the country were following the lead of the Morgan Guaranty Trust Co. in New York and trimming their prime lending rate to 12-3/4%. The one-quarter point cut, which was made by Morgan last Friday, was the first time that large banks have lowered their prime since February 1982, when it was lowered to 10-1/2% from 11%.

Early in the week, rates on Treasury issues had moved higher on disappointment that no other larger banks had announced prime rate cuts. Rumors even surfaced on Tuesday that Morgan would rescind its cut.

The reduction in the prime rate Thursday, however, followed sharp declines in money market rates earlier in the week. The overnight rate on interbank loans in the federal funds market, for example, fell to 9.84% on Wednesday after trading at 10.52% and 10.94%, respectively, on Tuesday and Monday.

The drop in the funds rate encouraged declines in other money market rates. Three-month Treasury bills, for example, were being bid at 10.19% at midafternoon Thursday, compared with 10.30% at Friday's close. Among privately issued instruments, three-month certificates of deposit tumbled to 10.90% from 11.22% while high-grade commercial paper eased to 10.65% from 10.75% during the same period. …

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