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Bond prices rise, pushing yields near two-year lows

October 30, 1997

NEW YORK (AP) _ Bond prices climbed Thursday, pushing yields near 20-month lows as investors frightened by renewed declines in stocks again sought the perceived safety of U.S. government-backed securities.

The benchmark 30-year Treasury bond rose $9.38 for each $1,000 in face value. Its yield, which moves in the opposite direction from price, fell to 6.13 percent from 6.19 percent late Wednesday.

That approached the 6.12 percent level reached late Monday, which in turn was the lowest finish since 30-year Treasury yields ended the day at 6.09 percent on Feb. 14, 1996.

Treasury bonds have been attracting cash from around the globe since last week when prices in Asian stock markets began tumbling. Stocks sank again Thursday in markets spanning the globe from Hong Kong to London and New York.

Adding to the tensions were rumors denied by the Brazilian central bank of financial problems at major banks in that key South American country.

Investors also fretted about the possibility of an international confrontation after Iraq barred two U.S. arms inspectors authorized by the United Nations to seach for illegal weapons.

``These global situations are all hitting us at one time, and that is causing a flight to quality,″ said Bill Gamba, head of governmmnet bond trading at Cowen & Co. in New York.

U.S. Treasury securities are widely viewed as among the safest investments that can be made.

Bond traders shrugged off economic data that might otherwise lead to a decline in bond prices.

The government reported Thursday that new claims for unemployment benefits fell an unexpectedly steep 16,000 last week. In other circumstances, that could raise concerns about a tight labor market and the possibility that wages will rise, increasing inflationary pressures that sap bond value.

The government also reported new home sales remained strong in September even though they slipped 0.2 percent. Sales were at or above 800,000 for the fourth consecutive month, the longest such stretch in 19 years.

But Kevin Flanagan, money market economist for Morgan Stanley Dean Witter, said concerns about the strength of the domestic economy are not being reflected in bond prices these days.

Those concerns have been overshadowed by a flood of money into the bond market due to the global stock selloff, he said.

In the broader market, prices of short-term Treasury securities finished with gains of between 1/16 point and 9/32 point, while intermediate maturities as much as 17/32 point, reported Dow Jones Markets, a financial information service.

The Lehman Brothers Daily Treasury Bond Index, reflecting price movements in bonds with maturities of a year or longer, rose to 1,273.58 from 1,269.87 late Wednesday.

Yields on three-month Treasury bills rose to 5.13 percent, as the discount added 0.01 percentage point to 5.01 percent. Six-month yields were 5.23 percent and the discount gained 0.02 percentage point to 5.04 percent. One-year yields fell to 5.27 percent and the discount fell 0.01 percentage point to 5.02 percent.

Yields are the interest bills 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, held at 5.25 percent, the same as late Wednesday.

In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds rose 13/32 point to 121 25/32. The average yield to maturity fell to 5.40 percent from 5.42 percent.

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