Bond Prices Depressed by Dollar's Fall, Selling By Foreigners, but Short-Term Issues Post Gains
NEW YORK -- A weaker dollar and heavy selling by some foreign investors depressed long-term bonds, while short-term securities rose amid continued speculation that the Federal Reserve will ease credit policies.</br></br>The Treasury's benchmark 30-year bond fell more than 5/8 point, or about $6.25 per $1,000 face amount. The bond's yield, which moves in the opposite direction from its price, rose to 8.13% from 8.06% Monday. Meanwhile, bond-equivalent yields on three-month Treasury bills fell to 8.02% from an average of 8.24% at the government's auction on Monday.</br></br>As a result, the 30-year bonds now yield more than three-month Treasury bills for the first time since May 23. This relationship, in which short-term rates drop below long-term rates, is known as a "positive yield curve" and is often viewed as a sign that investors are expecting stable or possibly higher long-term interest rates down the road.</br></br>If the positive yield curve remains that way, it could also signal that the powerful bond market rally "may be close to its end," said Charles Lieberman, a managing director at Manufacturers Hanover Securities Corp.</br></br>The yield curve had been "inverted" for most of the past three months. That's an unusual configuration where long-term bond yields stand below the yields on short-term Treasury bills.