Bonds move higher

NEW YORK (CNNMoney.com) -- Treasury prices rose Wednesday after an auction of $19 billion of three-year notes by the federal government as well as positive comments by a Federal Reserve official.

The dollar gained against the euro and the yen.

The benchmark 10-year Treasury gained 6/32, or $1.87 on a $1,000 note, to yield 4.64 percent, versus 4.65 percent late Tuesday. The 30-year bond price rose 13/32, or $4.06 on a $1,000 investment, yielding 4.73 percent down from 4.75 percent in the previous session. Bond prices and yields move in opposite directions.

The five-year note moved up two ticks to yield 4.60 percent. The two-year note added one tick yielding 4.75 percent.

A $19 billion sale of 3-year notes was generally well received by the market, according to Reuters.

With no more economic data due out today, the market has its eyes on the outcome of the close Senate race between challenger Jim Webb and Senator George Allen in Virginia, the results of which could tip the balance of both chambers of Congress into the hands of Democrats, significantly altering the fiscal stance of Washington.

The Democratic Party victory in the House of Representatives could make it harder for Republicans to cut taxes, while President Bush will likely balk at many Democratic spending proposals. Together the effect will create the so-called gridlock that some experts say leads to less upward pressure on the federal budget deficit.

A Democrat-controlled Senate will only increase the effect.

The bond market typically reacts well to more fiscal discipline since a lower budget deficit means the government has to sell fewer bonds to finance the deficit, which in turn helps support bond prices.

Also Chicago Federal Reserve President Michael Moskow, in comments to reporters, said that the current pause in interest rate hikes is working. Moskow, who had taken part in a Ball State University economic roundtable, said the Fed was "not behind the curve" on fighting inflation, Reuters reported.

Bond investors hate inflation since it erodes the returns on their long-term investments.

The euro bought $1.2768 down slightly from $1.2769 Tuesday, while the dollar bought ¥117.76 up from ¥117.71 in yesterday's session.

-- from staff and wire reports

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