Bond Prices Get Help From the Dollar To Stage Rally and Break Deep Slump
NEW YORK -- The dollar's rebound yesterday helped the bond market snap out of its deep slump as prices of actively traded Treasury issues posted their first gains since Wednesday.</br></br>After plunging early in the day, some 30-year Treasury bonds staged a powerful rally in highly volatile trading, winding up with gains of half a point, or $5 for each $1,000 face amount, from Friday's closing levels. Nevertheless, prices still are about 11 1/2% lower than they were only about a month ago, when the dollar went into a tailspin, rekindling inflation fear as well as concern that foreign investors would stop buying U.S. bonds.</br></br>At one stage early yesterday before the dollar had recovered, the latest 30-year Treasury bond's yield surged to nearly 8 7/8%. It later fell to 8.64% from 8.7% Friday. As recently as March 26, this issue yielded only 7.55%. Precious metal prices also staged a big reversal, with gold prices first soaring through midmorning and then later plunging.</br></br>The catalyst for the turnaround in the dollar, bonds and commodities, as well as stocks, was a White House spokesman's statement that further declines in the dollar could be "counterproductive." Several analysts said they were surprised that such a seemingly bland remark could have such a big impact, especially as it amounted to a mere repetition of recent comments by Treasury Secretary James Baker. But others said the statement was encouraging because it indicated more unity within the administration on stabilizing the dollar.</br></br>Traders' obsession with the dollar is especially intense this week because the Treasury is scheduled to announce details tomorrow afternoon of its huge quarterly financing operation. The financing is expected to total between $27 billion and $29 billion of three-year, 10-year and 30-year bonds, all to be sold next week.