Government bonds continued to rally on Tuesday, sparked by a selloff in gold.
Stocks moved lower despite the strength in bonds. The dollar declined.
Interest rates plunged as a result of the bond rally. At 4 p.m., the price of the Treasury's 30-year bond was up 3/4, dropping the yield to 5.89% from 5.93% on Friday.
The yield on the long bond has plummeted about 60 basis points in the last month.
10-Year Note Price Is Up
"It looks as if the 30-year Treasury bond wants to have a rendezvous with 5.75%," said John Lonski, senior economist at Moody's Investors Service.
Ten-year notes were up 3/8, sending the yield to 5.25% from 5.29%. Five-year notes rose about 1/8, cutting the yield to 4.59% from 4.62%. But two-year notes were down less than 1/8, to yield 3.74%.
Interest rates also fell at the Treasury's weekly auction of short-term securities.
The Treasury auctioned a total of $22.3 billion of three- and six-mouth bills at respective average discount rates of 2.95% and 3.03%. These rates are down sharply from last week's auction levels of 3.02% for three months and 3.15% for six months.
Tumbling gold prices have provided Treasuries with their latest rallying point.
On the New York Commodities Exchange, the October gold futures contract fell $14.50 to $350.80 an ounce. This is as low as gold has been since May, when several major investment funds began purchasing gold.
Fears of weakening Far Eastern demand for gold sparked Tuesday's selloff in the precious metal. These concerns were ignited by a 53.9% decline in Taiwanese gold imports in August.
But an overall perception of lower inflation provided a more fundamental basis for the decline.
A Traditional Hedge
Gold is a traditional hedge against inflation. When inflation is low, the price of gold declines.
A sharp decline in the Commodity Research Bureau Index - which measures 31 futures prices - also hurt gold. The index fell 2.79 points, or 1.3%, to 213.27 on Tuesday.
Low inflation, while bad for gold, is good for bonds. And the sinking gold prices added to a bond market that was already euphoric about Friday's employment report. The government reported a much-worse-than-expected decline of 40,000 nonfarm jobs.
Mr. Lonski said there was further bad news on the employment front. He said a private report released on Tuesday showed that layoffs have totaled 400,000 so far this year - well above the levels of the 1991 recession.
"The report underscores the underlying weakness of the U.S. economy," he said.
Stocks moved lower in what was described as post-holiday profit-taking. Falling gold prices hurt some shares dependent on the metal.
The Dow Jones industrial average lost 26.83 points to 3,607.10. The Standard & Poor's 500 index fell 2.82 to 458.52. And the Nasdaq composite index lost 10.36 to 739.35.
Concerns about the weak U.S. economy hurt the dollar.