Treasury bond prices closed higher Friday, despite an economic report that normally would have been bad news for the market.
The price of the Treasury's bellwether 30-year bond rose 5/8 point, or $6.25 per $1,000 in face amount. Its yield, which moves in the opposite direction from price, fell to 7.94 percent from 7.98 percent late Thursday.Personal incomes posted their biggest increase in three years in February, the government said, helping support a gain in consumer spending that will be crucial to an economic recovery. Personal incomes rose 1.1 percent while consumer spending grew by 0.9 percent.
News of economic improvement normally depresses bond prices, since it lessens the likelihood the Federal Reserve will lower interest rates. Lower rates boost bond prices.
Treasury bond prices did fall on the report, but then quickly recovered ground as investors apparently spotted buying opportunities at the lower price levels, said Steven R. Ricchiuto, chief economist at Barclays de Zoete Wedd Securities Inc.
Also supporting bond prices were rumors that some major investors were moving money out of stocks and into bonds, he said. Another factor, he said, was that several economists revised downward their projections for economic growth in the second quarter.
Analysts added that the price movement was exaggerated by the thin trading volume.
In the secondary market for Treasury bonds, short-term maturities were 5-32 point to 5-16 point higher, intermediate maturities were 5-16 point to 7-16 point higher, and long-term issues were 5/8 point higher, the Telerate Inc. financial information service reported.
The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.
The Lehman Brothers Daily Treasury Bond Index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, rose 3.25 to 1,214.39.
Yields on three-month Treasury bills fell to 4.09 percent as their discount rate fell 1 basis point to 4 percent. Yields on six-month bills fell to 4.27 percent as the discount fell 3 basis points to 4.13 percent. Yields on one-year bills fell to 4.53 percent as the discount fell 1 basis point to 4.34 percent.
A basis point is one-hundredth of a percentage point. The yield is the annualized return on an investment in a Treasury bill. The discount is the percentage that bills are selling below the face value, which is paid at maturity.
The federal funds rate, the interest on overnight loans between banks, was quoted at 31/4 percent, down from 41-16 percent late Thursday.
In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds closed at 947-16, up 1-16 point. The average yield to maturity was 6.77 percent, down from 6.78 percent late Thursday.