Prices of U.S. Treasury bonds and notes finally surged, and yields plummeted in a weeklong buying binge ignited by the Federal Reserve Board's decision to boost interest rates by one-half percentage point.
And, analysts indicated prices are likely to continue to rise in the months ahead.Treasuries had been eroding since the beginning of the year, sending yields to their highest level since November 1992.
"Lost in the euphoria of the bond market's initial reaction to the Fed's interest rates moves is an important shift in the force that will drive the market in the months ahead," said William Curtin, chief fixed income strategist at Lehman Brothers.
"It's the economy - it's bullish for bonds," he said.
Curtin said he expects some of the economic data released in the coming weeks to continue showing growth and strength - keeping inflation fears alive - before clearer signs of slowing emerge in the second half of the year.
During the week, the bellwether security, the 61/4 percent 30-year Treasury, surged 2-7/32nds after rising 9/32nds during the previous week.
The bond's yield, which moves in the opposite direction of its price, slipped to 7.30 percent from the 7.50 percent level of the previous week.
The long-term paper's yield set a record low of 5.78 percent last Oct. 15 and climbed to its highest level since November 1992 on May 12, at 7.63 percent.
The yield on the popular 53/4 percent 10-year paper sank to 7.03 percent this week from 7.30 percent a week earlier. The security also set a record low of 5.16 percent on Oct. 15.
The yield gap between the two-year note and the 30-year bond widened to 1.53 basis points from 1.45 a week earlier.
Analysts said the Federal Reserve Board's 50 basis point tightening fueled the rally.
"The Fed's tightening allowed the possibility of a neutral interest rate environment and may have ended the recent tightening trend," said Chris Moore, senior fixed-income analyst at Technical Data, a division of Thomson Financial Services.
"Consequently, the bond market responded favorably to the interest rate rise. The rally is not seen as a new trend, but a hiatus in the rising interest rate environment," Moore added.
By late week a variety of modest negatives, including surging commodity prices and a huge amount of fresh supply, contributed to some profit-taking.
Looking ahead, on the supply side, the government will conduct its weekly Treasury auction Monday.
On Tuesday, the Treasury will auction off an estimated $17 billion in new two-year notes.
On Wednesday, the government plans to sell an estimated $11 billion in new five-year notes. And, on Thursday, the Treasury plans to sell $16.5 billion of new 52 week paper.
Market watchers noted some concerns over the upcoming supply. With the market scrambling to cover and establish positions in the front end, traders said, next week's auction's could be well bid.
Investors hungry for new information on the condition of the nation's economic health may have to wait at least until Wednesday, when the Commerce Department will report on durable goods for April. In March new orders for durable goods rose 0.8 percent.
Also on Wednesday, Commerce will report on existing home sale for April. In March existing home sales rose to 4.06 million units from 3.84 million units in February.
On Friday, ahead of the long Memorial Day holiday weekend, Commerce will issue its first revision on the first quarter gross domestic product.
Commerce will also issue its preliminary report on first quarter corporate profits. In its first estimate, the government said the GDP expanded at a seasonally adjusted annual rate 2.6 percent in the first quarter after expanding 7.0 percent in the fourth quarter.