Treasury bond prices rebounded strongly Friday in a powerful rally fueled partly by a newspaper report that Federal Reserve Chairman Alan Green-span thinks investors' fears of inflation are overblown.
The price of the Treasury's main 30-year bond jumped 11/2 points, or $15 per $1,000 in face value. Its yield, which moves in the opposite direction, dropped to 6.80 percent from 6.93 percent late Thursday.Bond prices rose from the early going in reaction to the Wall Street Journal article, which cited Fed insiders as saying Greenspan doesn't believe the economy will overheat and spur inflation.
The news was a welcome relief to many investors, who have bid prices sharply lower in recent weeks for fear that the value of their fixed-income holdings will be eroded by rising prices in the economy.
The worries had been sparked by reports of increased growth in national employment and other economic sectors this year and by a recent big rise in oil and other commodity prices.
Greenspan's view of stable inflation means the central bank is less inclined to push for higher interest rates anytime soon, and higher interest rates on new securities diminish the value of bonds already in circulation. The Fed uses interest-rate hikes as a tool to stem inflation pressures.
Several market strategists said they agreed with Greenspan's inflation assessment. The newspaper report came as the Labor Department reported a .4 percent increase in overall consumer prices last month, roughly in line with economists' expectations.
In addition, energy futures prices retreated from five-year highs Friday. The Commodity Research Bureau's index of 17 commodities, including oil, fell 0.49 point to 260.17.
"The bond market has every right to be concerned to some degree" about inflation, said Charles Pradilla, chief investment strategist for Cowen & Co., a New York investment firm. "But I think it's a overreaction."
The Treasury market advance accelerated in early afternoon after results from a monthly survey from the University of Michigan. The survey, which is not publicly available, was said to show that consumers' sentiment about the economy dropped to 90.8 in mid-April from 93.7 in March. Consumers' outlook was said to fall to 80.9 from 86.2.
Friday's news "reassured people that numbers recently have to be tempered by evidence that the economy is growing moderately but not really picking up steam," Pradilla said.
Elsewhere in the market, prices of short-term Treasury securities ranged from 5-16 point to 17-32 point higher and intermediate maturities rose from 7/8 point to 11/8 points, reported Dow Jones Tele-rate Inc., a financial information service.
The Lehman Brothers Daily Treasury Bond Index rose 9.24 points to 1,237.75.