Treasury bond futures soared Tuesday to levels last seen eight years ago on the belief that interest rates will go still lower.
The contract for delivery in March was 1 8/32 points higher before falling back and settling at 97 12/32, up 17/32. All deliveries were 17/32 higher on the Chicago Board of Trade except June, which advanced 16/32.
“The market is expecting government data this week to show a loss of momentum (in the nation’s economy), said Gary Dorsch, an analyst in Chicago with G. H. Miller & Co.
The result, he said, could be a “further easing of the Federal Reserve’s credit policies.”
The Federal Reserve and the central banks of West Germany and Japan lowered key interest rates last week.
But, he said, if Fed unilaterally cuts rates now, “the dollar could move into a free fall and undermine progress against inflation.”
So, any interest rate moves would be made in conjunction with other central banks, he said.
Also, Dorsch said, “there’s a lot of talk that Japan needs to cut interest rates further to stimulate its domestic economy.”