A sharp fall in oil prices lifted the price of the 30-year Treasury bond, but the rest of the bond market was unchanged on the day. The big rally in stocks dampened enthusiasm for bonds, but the approach of the end of the third quarter kept a floor under bond prices, market analysts said.
There was no market-moving economic news, but the government took the unusual step of
Consumer Price Index
) for January to August, as it
yesterday announced it would do. The revised results added 0.1 percentage point to the core rate of inflation, boosting it to 2.6% from 2.5%.
The benchmark 10-year
Treasury note was unchanged at 99 14/32, its yield 5.825%. Shorter-maturity issues were narrowly mixed.
But the 30-year
Treasury bond rose 7/32 to 105 2/32, dropping its yield 1.5 basis points to 5.886%. At the
Chicago Board of Trade
, the December
Treasury futures contract added 5/32 to 98 17/32.
The steep drop in oil prices, in response to a pledge by Saudi Arabia to supply as much as necessary to stabilize the market, benefited the bond market because investors link oil prices to inflation, and inflation hurts bond prices.
Even though high energy prices have the potential to stall economic growth, enhancing the appeal of bonds relative to stocks, for the time being bond investors are reacting positively to falling oil prices and negatively to rising oil prices. The sharpest reactions come in long-maturity Treasuries because inflation can take a greater toll over a longer period of time.
Oil's drop might have benefited the bond market more broadly if not for the big rally in stocks,
Morgan Stanley Dean Witter
economist Bill Sullivan said. Short-maturity Treasuries in particular have benefited lately from weakness in stocks, which prompts some investors to flee to the relative safety of short-maturity bonds.
Treasuries also got support from the calendar,
Paribas Capital Markets
bond strategist Richard Gilhooly said. Investors who report portfolio holdings at the end of the quarter favor Treasuries for their safety and liquidity. Plus, there is a tendency for Treasury prices to rise on the last business day of the month as bond indices are reconfigured to incorporate newly issued bonds and boot out aging ones.
Finally, Treasuries benefited from uncertainty surrounding the euro, according to Gilhooly. With Denmark voting on whether to join the single currency (they ultimately voted against it), there was speculation about whether a rejection would hurt the euro, and how badly. A renewed slide -- which did not ultimately ensue -- could slam stock markets, and that could benefit bonds, Gilhooly said.
In other news, the Treasury Department conducted a
buyback, purchasing $1 billion of
callable bonds maturing from February 2010 to November 2014.
In other economic news, second-quarter
) was finalized at 5.6%, up from 5.3%. The second-quarter price deflator, a measure of inflation, was finalized at 2.4%, down from 2.6%. The revision to GDP was due principally to the trade deficit, which turned out to be smaller than government statisticians assumed it would be.
Initial jobless claims
) fell to 287,000, their lowest level in eight weeks, from 311,000 the previous week, indicating a tighter labor market. The four-week average dropped to 308,750 from 316,500.
) dipped to 78 in August, its lowest level since January 1994, from 82 in July.
Currency and Commodities
The dollar rose against the yen and the euro. It lately was worth 107.54 yen, up from 107.35. The euro was worth $0.8776, down from $0.8831. For more on currencies, see
Crude oil for November delivery at the
New York Mercantile Exchange
fell to $30.34 from $31.46.
Bridge Commodity Research Bureau Index
fell to 225.46 from 226.57.
Gold for December delivery at the
fell to 278.90 from 281.60.