Treasury bond prices edged higher in very light trading Wednesday as investors apparently shrugged off another surge in oil prices.
But analysts warned that the credit markets were not yet ready to disregard the inflation threat posed by higher energy costs.
The government's bellwether 30-year bond crept up by 1/32 point, or about 31 cents per $1,000 face amount. Its yield, which moves in the opposite direction from its price, slipped to 9.12% from late Tuesday's 9.13%.
Bond prices generally have fallen as oil prices rose since the Aug. 2 Iraqi invasion of Kuwait. Traders have been concerned about the prospect of higher inflation, which not only erodes the value of fixed-income securities, but also gives the Federal Reserve less leeway to lower interest rates.
The federal funds rate, the interest banks charge one another for overnight loans, was quoted at 8.188%, down from 8.25% late Tuesday.
In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds fell 1/32 point to 87 31/32. The average yield to maturity rose to 7.82% from 7.81% late Tuesday.
CURRENCY Dollar Gains on Yen, Falls Against Mark The dollar gained against the Japanese yen but fell against the German mark in uncertain trading clouded by worries about the economy.
The dollar was supported by widespread market belief that the Federal Reserve will not lower interest rates imminently, opting instead to keep money tight to control inflation.
But concerns that the economy is weakening, and may even be headed for recession, stopped traders from buying many dollars.
The dollar finished at 1.5660 German marks, down from Tuesday's 1.5735, and at 136.855 yen, up from 136.70 Tuesday.
"The market is just chasing itself around," said Robert White, vice president of First Interstate Bank in Los Angeles.
The mark gained after Bundesbank President Karl Otto Poehl said the West German central bank would not make concessions on price stability amid efforts to revitalize the East German economy.
The yen was hampered by a 4.8% drop in Tokyo stock prices, which brought them to their lowest level since January, 1988.
Washington released fresh data pointing to the economy's sluggish state. Durable goods orders fell 0.8% in August, but the market expected a dip of 1.5%, so the dollar actually firmed briefly on the data. Personal income rose a scant 0.3% in August, and consumption spending was up 0.5%.
The dollar also suffered from the ongoing impasse between the Bush Administration and Congress on reducing the budget deficit.
The British pound ended at $1.8718, up from Tuesday's finish of $1.8785.
COMMODITIES Jet-Downing Rumor Sends Gold Higher Gold futures prices overcame early choppy trading and settled sharply higher amid unconfirmed rumors of fighting in the Middle East and worries that an already sluggish economy is giving way to inflation.
On other commodity markets, silver and platinum fell sharply, energy futures were mostly higher, wheat was higher, meat futures were lower and corn was mixed.