Magazine article American Banker

Broad Rally in Government Bond Market Is Sparked by Selloff in Gold

Magazine article American Banker

Broad Rally in Government Bond Market Is Sparked by Selloff in Gold

Article excerpt

Government bonds continued to rally on Tuesday, sparked by a selloff in gold.

Stocks moved lower despite the strength in bonds. The dollar declined.

Interest rates plunged as a result of the bond rally. At 4 p.m., the price of the Treasury's 30-year bond was up 3/4, dropping the yield to 5.89% from 5.93% on Friday.

The yield on the long bond has plummeted about 60 basis points in the last month.

10-Year Note Price Is Up

"It looks as if the 30-year Treasury bond wants to have a rendezvous with 5.75%," said John Lonski, senior economist at Moody's Investors Service.

Ten-year notes were up 3/8, sending the yield to 5.25% from 5.29%. Five-year notes rose about 1/8, cutting the yield to 4.59% from 4.62%. But two-year notes were down less than 1/8, to yield 3.74%.

Interest rates also fell at the Treasury's weekly auction of short-term securities.

Rallying Point

The Treasury auctioned a total of $22.3 billion of three- and six-mouth bills at respective average discount rates of 2.95% and 3.03%. These rates are down sharply from last week's auction levels of 3.02% for three months and 3.15% for six months.

Tumbling gold prices have provided Treasuries with their latest rallying point.

On the New York Commodities Exchange, the October gold futures contract fell $14.50 to $350.80 an ounce. This is as low as gold has been since May, when several major investment funds began purchasing gold.

Fears of weakening Far Eastern demand for gold sparked Tuesday's selloff in the precious metal. …

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