NEW YORK (CNNfn) - U.S. bonds rose for a third day Friday, sending yields to three-week lows after remarks from Federal Reserve Chairman Alan Greenspan allayed investors' concerns about another increase in interest rates next month.
Shortly after 9 a.m. ET, the benchmark 30-year Treasury bond rose 15/32 of a point. The yield, which moves in the opposite direction of the price, slid to 6.22 percent from 6.25 percent late Thursday. The yield has fallen 0.18 percentage point since Monday, when it stood at 6.40 percent.
The dollar was little changed against the yen and higher against the euro.
Speaking Thursday evening, Greenspan said that while technology gains have helped boost U.S. productivity and kept inflation in check, the Fed must still be vigilant against inflation. Greenspan also suggested that rising long-term interest rates may already be working to slow economic growth and relieve some demand pressures.
His remarks, combined with Thursday's market-friendly growth and inflation numbers, sent bonds higher for a third day as investors concluded the Fed will hold off raising rates at its Nov. 16 Open Market Committee meeting and will continue to ensure that inflation -- the nemesis of bonds -- remains in check.
"Balanced comments from Greenspan, in addition to yesterday's (Thursday's) favorable inflation numbers, are helping give a boost to Treasurys," said Rob Palombi, a senior markets analyst with Standard & Poor's MMS in Toronto. At the same time, "we're not seeing much signs of a slowdown in the U.S. economy, which could put upward pressure on bond yields going forward," he said.
The Fed raised its trend-setting target rate for overnight loans between banks twice this summer -- two quarter-point increases in June and August -- as a preemptive strike against inflation. The Fed also cited stronger growth overseas as reason for the rate increases, which came after three successive easings in monetary policy in 1998.
It opted to leave rates unchanged at its Oct. 5 meeting, although it warned that it was leaning toward raising rates again if it thought inflation might be posing a threat. Inflation erodes bonds' fixed principal and interest payments.
Now, sentiment in the U.S. bond market indicates that the Fed, if it goes at all, will only raise rates one more time as a way to slow growth and ensure inflation stays under wraps, Palombi said. "That's what's giving the bond market an underpinning today," he said.
A bond turnaround?
Bonds have suffered through much of the year as skyrocketing stocks, an unsteady dollar, two interest rate hikes and concern about accelerating inflation have kept investors sidelined . Since January, the yield on the 30-year benchmark bond has risen 1.2 percentage points; it touched an all-time low of 4.70 percent on Oct. 5, 1998.
That may now be changing, analysts said, as investors take advantage of real rates of return that are increasingly attractive. Real interest rates on bonds are the bond's yield minus the current rate of inflation, which stood at 2.6 percent annual rate in September, putting the 30-year bond's real rate of return at about 3.63 percent.
"Strong economies and low inflation may not be inconsistent anymore," said Carl Weinberg, chief economist of High Frequency Economics.
Later Friday morning, the September tally of new home sales was scheduled for release.
Greenspan's remarks and continued optimism over Thursday's reports also helped lift the dollar, which gained for a fourth consecutive day against the euro.
The dollar rose to $1.0451 per euro, its strongest level since Sept. 28, up from $1.0517 Thursday. Against the yen, the dollar was little changed at 105.04 yen from 105.10 Thursday. 
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