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Bond Prices Surge on Mild Inflation

October 28, 1999

NEW YORK (AP) _ Bond prices surged Thursday on news that inflationary pressures were milder than anticipated during the third quarter.

The price of the benchmark 30-year Treasury bond rose 1 1/32 points, or $10.31 per $1,000 invested. Its yield, which moves inversely to the price, fell to 6.25 percent from 6.33 percent late Wednesday and a two-year high of 6.37 percent on Tuesday.

Investors clamored for Treasurys after Labor Department statistics revealed that the employment cost index, which is used to gauge employers’ compensation costs and is a closely watched inflation barometer, rose 0.8 percent during the three-month period that ended in September. Economists had anticipated a 0.9 percent increase.

The news eased investor concerns that Federal Reserve Board policy-makers would find it necessary to raise interest rates repeatedly to defuse inflationary pressures, even if they raise rates again at a Nov. 16 meeting.

The government also said the economy grew at an annual rate of 4.8 period during the same period, well above the 4.5 percent annual rate analysts had predicted.

The two reports also served as catalyst for a strong rally in the stock market, with the Dow Jones industrial average rising 227.64 points to 10,622.53.

In the broader market, prices for short-term securities rose 1/16 point to 1/8 point, while intermediate treasury securities rose 9/32 point to 17/32 point, reported Bridge Telerate, a financial information service.

Yields on three-month Treasury bills were 5.09 percent as the discount fell 0.04 percentage point from Wednesday to 4.95 percent. Six-month yields were 5.29 percent, as the discount fell 0.02 percentage point to 5.08 percent. One-year yields were 5.45 percent as the discount fell 0.04 percentage point to 5.17 percent.

Yields are the interest bonds pay by maturity, while the discount is the interest at which they are sold.

The federal funds rate, the interest on overnight loans between banks, fell to 5.31 percent from 5.38 percent on Wednesday.

In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds rose 3/8 to 108 17/32. The average yield to maturity fell to 6.14 percent from 6.16 percent.

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