CREDIT : Bond Prices Rise on Indications That Inflation Will Stay Low

Bond prices rose Tuesday in a rally spurred partly by a drop in commodity prices that analysts said prompted speculation about low near-term inflation.

Bond prices also were boosted by Federal Reserve Chairman Alan S. Greenspan’s confirmation to Congress that the central bank recently pushed interest rates lower to help spark the economy.

The Treasury’s closely watched 30-year bond rose about 3/4 point, or $7.50 for every $1,000 in face value. The yield on the issue, which moves inversely to its price, slipped to about 8.34% from 8.41% late Monday.

Supporting the rally in the early going was Greenspan’s congressional testimony. Among other things, Greenspan confirmed that the Fed had taken a “small easing step a few weeks ago” in an effort to keep the economic expansion alive.

Bond market participants widely had believed that the Fed pushed interest rates lower recently but viewed Greenspan’s confirmation as an indication that the central bank’s tendency was toward easier credit or stability rather than tighter credit.

“There were some who wondered about the size of the move and the purpose of it and he spelled that out, indicating (that) they saw indications of economic weakness against a background of a stable dollar and took the opportunity to ease,” said Paul Boltz, financial economist for the mutual fund firm T. Rowe Price Associates in Baltimore.

Bond prices benefited in later trading from a sharp decline in the widely followed Commodity Research Bureau index. A declining trend in the index, which tracks price trends for 21 commodities, is considered to be a signal of low inflation.

The federal funds rate, the interest on overnight loans between banks, traded at 6.5625%, down from 6.6875% late Monday.

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