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Bonds rally in wake of Fed
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August 23, 2000: 3:37 p.m. ET
Ten-year note yield at lowest level in a year; dollar skids vs. yen, euro
By Staff Writer Jill Bebar
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NEW YORK (CNNfn) - U.S. Treasury securities rallied Wednesday, with the yield on the benchmark 10-year note falling to its lowest level in a year, as investors were confident the Federal Reserve will not raise interest rates for the remainder of the year.
In the currency markets, the dollar slumped against both the yen and the euro.
Shortly after 3 p.m. ET, the benchmark 10-year Treasury note rose 11/32  of a point in price to 100-4/32. The yield, which moves inversely to price, fell to 5.73 percent from 5.78 percent Tuesday.
The 30-year bond gained 17/32 to 108-3/32, its yield retreating to 5.68 percent from 5.71 percent.
Analysts said the market's rally came as a surprise in the wake of the Fed's widely expected decision Tuesday to keep short-term interest rates steady.
While the central bank reiterated its concerns regarding inflation, investors expressed optimism that the Fed's aggressive tightening campaign is done. The fed funds contract, which gages expectations on where interest rates are headed, suggests little chance of a tightening before the year's end.
The next monetary policy meeting is scheduled for Oct. 3.
Analysts said favorable technical factors and better buying, which began overnight, buoyed the market.
The Treasury Department announced it will repurchase on Thursday $750 million in callable securities with maturities between February 2010 and November 2014. The operation marks the first time callable issues will be included in the buyback program.
Investors are awarded a higher coupon, or interest rate, on callable issues because the security can be retired earlier than its scheduled maturity date.
The Treasury plans to buy back up to $30 billion this year in outstanding securities. So far, its has taken $19 billion out of the market through 11 buyback operations
John Santoro, head of government trading at S.G. Cowen, said there was "fair demand" for the department's auction of $10 billion of two-year notes. The bid to cover -- a measure of investor demand that compares the number of bids received to the number accepted -- was 2.69:1 versus 2.63:1 at the previous auction.
Meanwhile, investors dismissed a sharp rise in oil prices. In late trading, U.S. light crude futures for October delivery rose $1.26 to $32.48 a barrel following news of a decline in U.S. petroleum inventories to new 24-year lows.
High oil prices heighten the risk for inflation, a negative for the bond market.
Dollar slides
The dollar fell sharply against the yen Wednesday, extending recent losses after Ichizo Ohara, a senior official of Japan's Liberal Democratic Party, said his country's economy could withstand a stronger yen.
In intra-day trading, the dollar fell below the psychologically significant 107-yen level. Analysts said growing expectations that the Japanese economy  is moving toward a sustainable economic recovery also helped the yen.
The Bank of Japan recently raised rates for the first time in a decade, ending its zero-rate policy
Shortly after 3 p.m. ET, the dollar traded at 107.14 yen, down from 108.32 yen Tuesday, a 1 percent loss in the dollar's value. The euro was at 90.01 cents compared with 89.67 cents Tuesday. 
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