Treasurys rise on dollar weakness

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NEW YORK (CNNMoney.com) -- Treasury prices rose Tuesday as a weak dollar encouraged overseas investors to buy U.S. debt.

Prices are being supported by demand "from foreign accounts who are taking advantage of a weaker dollar," said Kevin Giddis, managing director of fixed income at Morgan Keegan.

A softer greenback makes assets that are priced in dollars more attractive to buyers in other currencies.

Tuesday's advance came after the market was closed Monday for the Columbus Day holiday. No major economic reports were released Tuesday.

The dollar fell to a 14-month low against rival currencies amid speculation that the Federal Reserve will keep U.S. interest rates at historic lows for an extended period.

"The Fed is and has to be accommodative for a longer period that it and the market participants thought," Giddis wrote in a research report.

The U.S. central bank, which is due to release minutes from September's policy meeting Wednesday, slashed interest rates to near 0% earlier this year. In its most recent policy statement, the Fed said rates will remain exceptionally low for some time.

Meanwhile, Treasurys were also being supported by bets inflation will remain tame. Rising consumer prices can severely undermine the value of fixed-income assets such as Treasurys.

"Inflation is and will likely remain tame for well into our future," according to Gidds.

On Thursday, the government will release its Consumer Price Index for September.

The closely watched inflation gauge is expected to show a rise of 0.2% in September, compared to a 0.4% rate the month before, according to a consensus of economists surveyed by Briefing.com.

Consumer prices excluding volatile food and energy costs, the so-called core CPI, are expected to have risen 0.1%, the same rate of increase as in August.

Bond prices. The benchmark 10-year note was up 9/32 to 102 8/32 and its yield fell to 3.35% from 3.38% late Monday. Bond prices and yields move in opposite directions.

The 2-year note gained 5/32 to 100 6/32, with a yield of 0.90%.

The 30-year bond jumped 13/32 to 105 1/32. Its yield was 4.20%.

The yield on the 3-month bill was 0.7%.