Government bonds rallied on Thursday, as the market continued to benefit from refinancing activity in other markets.
The sharp drop in interest rates has led to refundings of municipal and corporate bonds and prepayments on mortgage-backed securities.
Money from these markets has flooded into Treasuries.
"Cash is being forced into the market," said Charles Lieberman, money market strategist for Chemical Securities Inc.
"The discussion is no longer if the rally can continue," said Astrid Adolfson of MCM MoneyWatch. "It's how low can yields go."
|In Its Own Little World'
At 4 p.m., the price of the 30-year bond was up over a point, sinking the yield to a record 6.09% from 6.16% on Wednesday.
"[The 30-year] is in its own little world," said Alan Levenson, money market economist for UBS Securities. "It's not trading off the fundamentals."
Market analysts said the long bond is also being supported by portfolio managers who need longer-term securities to meet preset duration targets for their holdings. "There is a stretch for yield," Mr. Levenson said.
Jobs Report a Stimulus
In addition, analysts said, the bond gained on a private research report released on Thursday that predicted big employment losses as a result of President Clinton's health care reform proposal.
The job losses would mean reduced inflation, a positive for the bond market.
Analysts said Brazilian government purchases of long-term U.S. Treasuries were another positive factor in the market.
The 30-year Treasury, used as a benchmark for long-term mortgages and other rates, is in the midst, of historic show of strength. The yield has plunged about a half percentage point since mid-July.
Besides being awash in cash from refinancing activity, the bond is benefiting from increased evidence of weak economic growth and low inflation.
The Labor Department reported on Thursday that new claims for state unemployment insurance rose 8,000 in the latest week, the latest sign of a sputtering economy.
Prices of other Treasury coupon issues also rose on Thursday, though not as sharply.
Ten-year notes advanced about 1/2, lowering the yield to 5.43% from 5.49%; five-year notes rose 1/8, dropping the yield to 4.79% from 4.92%; and two-year notes gained 1/16, lowering the yield to 3.83% from 3.84%. The bond-equivalent yield on the three-month Treasury bill was unchanged at 3.05%.
Dollar Plunges
The strength in the bond market was somewhat surprising given the plunge in the dollar on Thursday. The currency fell after the Bundesbank left interest rates unchanged. Germany's central bank had been expected to lower rates. The dollar finished in New York at 1.6660 marks, down from 1.6848.
Stocks were flat on profit taking. The Dow Jones industrial average lost 3.91 points to 3,648.18.
