Prices of Long-Term Bonds Climb in Reaction To Signal of Fed's Resolve to Battle Inflation
NEW YORK -- Bond traders reacted enthusiastically to a new sign of the Federal Reserve's determination to take further steps, if needed, to fight inflation.</br></br>Prices of long-term government bonds rose, erasing Friday's losses. The Treasury's benchmark 30-year bonds gained about half a point, or about $5 for each $1,000 face amount, to 101 17/32. Their yield, which moves in the opposite direction from the price, fell to 7% from 7.04%.</br></br>At the same time, prices of shorter-term government issues fell slightly and rates rose. Thus, the gap between short-term and long-term rates narrowed, a development known in bond jargon as a "flattening of the yield curve."</br></br>Traders said the main catalyst was an article in The Wall Street Journal, reporting that Fed officials voted at a closed-door meeting last week to "lean" toward raising short-term interest rates. The article said this decision doesn't mean the Fed will raise rates right away. But the vote does underline the central bank's concern about recent signs that inflation may be picking up steam. The article cited "people familiar with the Fed's deliberations." A Fed spokesman declined comment.</br></br>"The bond market was relieved to learn that, if necessary, the Fed would tighten to curb inflation," said Nancy Lazar, executive vice president of ISI Group Inc., an investment research company.