Bond prices advanced sharply Tuesday, taking their lead from the dollar's powerful rise in foreign exchange trading.
The Treasury's key 30-year bond climbed 3/4 point, or about $7.50 for every $1,000 in face value, as its yield slipped to 8.86% from 8.93% Monday.
Market analysts traced the bond rally to a surge in the dollar, which they said was supported by a wave of central bank intervention.
Currency market traders reported that central banks of the United States, Japan, West Germany, Italy and Switzerland were buying dollars.
The dollar's rise makes U.S. securities more attractive to foreign investors and reduces the risks of inflation.
By the end of trading in New York, the dollar was up about 4 pfennigs to 1.6290 West German marks and up about 5 Japanese yen to 127.55 yen.
But bond prices finished below their highs for the day, according to Nancy Vanden Houten, a money market economist at Merrill Lynch.
"There was a selloff from the highs due to profit taking, increases in oil prices and a (retreat) in the stock market," she said.
At the New York Mercantile Exchange, contracts for February delivery of West Texas Intermediate, the U.S. benchmark crude, settled at $17.85 per 42-gallon barrel, up 16 cents from Monday.
The stock market rose broadly but finished below the day's highs.
In the secondary market for Treasury bonds, prices of short-term governments rose 3/32 point; intermediate maturities rose between point, and 3/4 point and 20-year issues rose a full point, according to Salomon Bros.
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 0.29 to 110.83. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, rose 2.95 to 1,160.16.
In corporate trading, industrials rose 3/4 point, and utilities rose 5/8 point in moderate trading.
Yields on three-month Treasury bills fell 9 basis points to 5.91%. Six-month bills fell 7 basis points to 6.35%, and one-year bills slipped 3 basis points at 6.63%. A basis point is one-hundredth of a percentage point.
The federal funds rate, which is the interest banks charge each other for short-term loans, fell to 7.25% from 7.50% Monday.
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