Bond prices rose as the dollar strengthened Monday but wound up giving back most of their gains when the U.S. currency also slipped.
In late trading, the Treasury's key 30-year bond was up 1/2 point, or $5 for every $1,000 in face value, according to figures provided by Telerate Inc.
The bond's yield, which moves inversely to its price, slipped to 8.93% from 8.98% late Thursday. The market was closed Friday in observance of New Year's Day.
At midday, it had been up by a full point, or $10 per $1,000 in face value, yielding 8.88%.
As the trading day began in Tokyo, the dollar hit new lows since the late 1940s against the Japanese yen. It then moved higher, as central banks in Japan and Europe joined the U.S. Federal Reserve in supporting the currency.
Bond prices also rose in early U.S. trading, because the rising dollar enhanced the value of U.S. securities to foreign investors.
In addition, analysts said, bonds drew strength from word that Southwest Bank in St. Louis had lowered its prime rate to 8.5% from 8.75%.
The prime is the benchmark used by banks to set interest rates on a variety of corporate and consumer loans, including mortgages and home-equity loans.
Later in the day, however, the dollar gave back some of its gains after another report, by Market News Service, saying an unidentified senior Fed official believed that the dollar would fall even more.
This in turn helped bring bonds lower as well, said Robert Chandross, chief economist of the North American head office of Lloyds Bank PLC in New York.
Robert J. Genetski, chief economist at the Harris Trust & Savings Bank in Chicago, agreed that the dollar's early strength helped bond prices.
But he said the market also was being affected by a survey of purchasing managers, released Sunday, that "indicated a lot of strength in the economy."
The National Assn. of Purchasing Managers said new orders and production expanded for the 12th straight month in December.
A stronger economy is generally bad for bond prices, because it leaves room for the Fed to raise interest rates.
In fact, interest rates rose for short-term securities in Monday's Treasury Department auction, after falling sharply last week.
Three-month bills sold at an average discount rate of 5.90%, up from 5.73% last week, and six-month bills stood at an average discount rate of 6.35%, up from 6.32% last week.
The rates were the highest since Dec. 21, when three-month bills sold for 5.96% and six-month bills averaged 6.48%.
In a separate report, the Federal Reserve said Monday that the average yield for one-year Treasury bills, the most popular index for making changes in adjustable rate home mortgages, dropped to 7.15% last week from 7.19% the previous week.
In the secondary market for Treasury bonds, prices of short-term governments rose 1/8 point, intermediate maturities rose point and long-term issues were up point, according to Telerate.
The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.
The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, rose 0.13 to 110.45. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, rose 2.33 to 1,157.21.
Moody's investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, rose 0.44 to 268.85.
Yields on three-month Treasury bills were up 17 basis points to 5.85%. Six-month bills rose 8 basis points to 6.24% and one-year bills were unchanged at 6.63%. A basis point is one-hundredth of a percentage point.
The federal funds rate, the interest on overnight loans between banks, traded at 7.50%, up from 7% late Thursday.
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