Strong Dollar, Lower Commodity Prices Help Push Bond Prices Sharply Higher
A surging dollar propelled bond prices sharply higher yesterday.</br></br>In New York, U.S. Treasury bond prices fell slightly early in the day but then surged as the dollar advanced. Actively traded Treasury issues wound up with gains of more than one point, or over $10 for each $1,000 face amount.</br></br>Helping to fuel the rally was an unexpected drop in agricultural commodity prices, which traders said helped ease inflation fears. The Commodity Research Bureau's futures price index, which soared in recent weeks because of the Midwest drought, sank 3.32 points yesterday to 267.20.</br></br>The dollar's strength was especially impressive because it came despite intervention by several central banks. Traders say a stronger dollar helps lift bond prices because it reduces inflation fears and also attracts more foreign investors.</br></br>Foreign investors appear to be much more enthusiastic about American bonds lately than Americans are, several analysts agreed. "The leadership in the market has come from foreigners -- European and Japanese investors -- who believe the dollar has bottomed," said James R. Capra, senior vice president at Shearson Lehman Government Securities Inc. He added that many U.S. investment managers remain skeptical about bonds because of fears that the economy's strength will lead to higher inflation.