Treasury bond prices rose sharply Friday as market players became convinced that the Federal Reserve Board's policy-making committee will keep interest rates stable at its meeting next week.
The price of the Treasury's main 30-year bond was up 1 3-32 point, or $10.94 per $1,000 invested. Its yield, which moves in the opposite direction, fell to 6.89 percent from 6.99 percent late Thursday. Prices and yields move in opposite directions.Prices of short-term Treasury securities rose 7-32 point to 5-16 point and intermediate maturities rose 19-32 point to 27-32 point, reported Dow Jones Telerate Inc., a financial information service.
The market has been rising steadily for the past weekm and it got another boost early Friday from an article in Business Week magazine indicating Fed Chairman Alan Greenspan is reluctant to raise rates for the time being.
Greenspan has a reputation as an inflation hawk, raising rates to cool the economy whenever it seems to be growing too fast.
Higher rates diminishes the value of fixed income-securities such as bonds. As interest rates rise, newly issued bonds pay a higher rate then those already in circulation.
The article said Greenspan has lately been telling colleagues privately that the spurt of economic growth seen in the second quarter won't last. That may remove any motivation for the Fed to raise rates.
"Everybody's talking up the fact that it's a Goldilocks economy, not to hot and not to cold," said Jim Kenney, head government securities trader at Prudential Securities Inc. in New York.
Also lending support to the market Friday was a report from the Fed revising downward the rate of annualized economic growth during the first quarter to 2.2 percent from 2.3 percent estimated in May.
In addition, a survey by corporate purchasing managers in Chicago showed just a slight increase in economic activity in the Midwest, giving traders a hint about national figures due out Monday.
The Lehman Brothers Daily Treasury Bond Index, reflecting price movements on bonds with maturities of a year or longer, rose 6.44 points to 1,233.65.
Yields on three-month Treasury bills fell to 5.15 percent as the discount fell 0.02 percentage point to 5.03 percent. Six-month yields fell to 5.35 percent as the discount fell 0.04 percentage point to 5.15 percent. One-year yields fell to 5.64 percent as the discount fell 0.07 point to 5.37 percent.
Yields are the interest bonds pay by maturity, while the discount is the interest at which they are sold.
The federal funds rate, the interest on overnight loans between banks, was 5.25 percent, down 0.25 point from late Thursday.
In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds closed at 114 and 00-32, up 27-32 from Thursday. The average yield to maturity was 6.01 percent, down 0.05 point.