A surprising rally in the bond market pushed rate to record lows, triggering a surge in stock prices to historic highs. The yield on the 30-year Treasury bond finished at 6.4% Monday afternoon, down five basis points from Friday's close, and the lowest yield since the Treasury began issuing the long bond in 1977.
In when-issued trading, the 30-year bond to be auctioned on Thursday fell to 6.93%.
Trading volume was light, with short-covering responsible for much of the drop in rates.
Many participants stayed on the sidelines ahead of Thursday's $11 billion auction of 30-year bonds.
The rally took most observers by surprise. Analysts had expected stocks and bonds to post marginal gains, at best, following the Senate's passage late Friday of the deficit reduction bill.
Instead, optimism over the president's budget victory and over the rally in bonds sent blue-chip stocks racing to a record.
The Dow Jones industrial average rose 15.65 to 3,576.08, topping an all-time high of 3,567.70 set July 26.
Broader indexes also gained but stayed below their all-time highs.
But smaller stocks, as measured by the Nasdaq Composite Index, set a fourth straight record high. That index rose 0.41 to 718.49.