T-Bond Futures Advance

Treasury bond futures prices, reflecting a low-inflation outlook, advanced strongly Wednesday on the Chicago Board of Trade, reaching prices last seen eight years ago.

The June contract, in setting a life-of-contract high and passing the mark set in January, 1978, settled at 98 15/32 points, up 1 2/32 points for the session.

“The continued evidence of low inflation” is the underlying force behind the uptrend in T-bonds, said Gary Dorsch, an analyst in Chicago with G. H. Miller & Co., adding that yet another sign was the 0.4% decline in the consumer price index, released Tuesday. Also, supportive is a lack of supply in the cash market, he said, with the Treasury postponing the sale of 20-year bonds at the weekly auction.

Now, the Treasury is not expected to sell any new bonds until late in May, Dorsch said, so traders who are short -- holding an excess of sales over purchases -- and active in both the cash and futures market could find themselves in a squeeze.

Wednesday’s rally got an extra boost when the Federal Reserve injected money into the banking system, keeping short-term interest rates steady, he said.