NEW YORK (CNN/Money) -
Treasury bonds rallied again Wednesday, driving yields to six-week lows, while the dollar's rally faltered on fresh worries about the twin deficits.
In the Treasury market, the benchmark 10-year note rose 14/32 to 101-13/32 to yield 4.07 percent, down from 4.13 late Tuesday. The 30-year bond jumped a full point, or $10 on a $1,000 bond, to 109-31/32 to yield 4.71 percent, down from 4.77. Bond prices and yields move in opposite directions.
The two-year note was little changed at 99-28/32, yielding 2.94 percent. The five-year note gained 7/32 of a point to yield 3.47 percent.
Some investors said the market's gains were due in part to continued relief that the Federal Reserve had sustained its pledge to be measured in raising interest rates and had reiterated its confident view on inflation.
"I thought they would be more concerned about inflation and in my eyes they should be," one trader at a U.S. primary dealer told Reuters.
The Fed, the nation's central bank, on Tuesday raised its target for a key short-term interest rate to 2.25 percent from 2 percent, as expected, and made only minor changes to its policy statement, confounding speculation it would hint at rising inflation concerns.
Inflation is a bond investor's worst enemy since it erodes the value of long-term bond investments.
Wednesday's bond rally paused after a surprisingly strong reading on regional manufacturing from the New York Fed. Its Empire State index of business activity climbed to 29.9 in December from 18.9 in November, while new orders and employment also improved markedly.
In currency trading, the dollar tumbled against major currencies as investors worried about the ability of the United States to finance its growing trade and current account deficits.
The euro bought $1.3397, up from $1.3305 late Tuesday, while the dollar fell to ¥104.24 from ¥105.54.
A day after news of a record $55.5 billion trade deficit in October, the Treasury said portfolio inflows into the United States that month totaled $48.1 billion -- the first time in a year that portfolio investment had fallen below the level necessary to cover the trade deficit.
That also served to underscore the dollar's weakness, analysts said, according to Reuters.
-- Reuters contributed to this report
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