Guess the europeans don't care about inflation -->
Thursday May 10 10:29 AM ET
U.S. T-Bonds Fall After ECB Rate Cut
By Ross Finley
NEW YORK (Reuters) - U.S. Treasuries fell on Thursday after the European Central Bank surprised markets with a quarter-point interest rate cut in a move that traders said took some pressure off the U.S. Federal Reserve (news - web sites) to lower interest rates aggressively.
Citing moderating inflation, the ECB cut its benchmark interest rate to 4.50 percent, matching the Fed's overnight bank lending rate.
U.S. stocks rose after the opening bell, partly on the view that lower Eurozone interest rates would prevent the global economy from slowing further and brightening hopes for a full U.S. economic recovery by year-end, according to dealers.
Bond investors said the ECB, which was the only major central bank that had not cut rates this year, made the Fed's job easier in the months ahead by doing its part to help boost sagging global growth.
That, investors said, diminished the appetite for risk-free Treasuries and boosted the allure of riskier debt securities as well as equities.
``The U.S. risk markets have had a good dose of cocaine in 50 basis point (Fed interest rate) cuts, and the addiction is pretty high,'' said Barry Evans, chief fixed-income officer at John Hancock Funds in Boston, which manages more than $30 billion in assets.
``But we've got a new drug on the Street now. It's only 25 (basis points) and the Europeans always take forever, but it's a new addiction, so a little bit goes a long way,'' Evans said.
Fed policy-makers meet next Tuesday and are widely expected to cut interest rates by another half percentage point, as they have done on four separate occasions this year in a bid to jump-start sputtering growth.
``It takes some pressure off the Fed,'' said John Roberts, head of government bond trading at Barclays Capital Group in New York, referring to the ECB cut.
``A lot of guys were saying if the ECB's never going to go, the Fed is going to have to go more, faster. Now the ECB's gone, which perhaps takes some pressure off the Fed,'' Roberts said.
News that U.S. jobless claims tumbled sharply, to 384,000 from an upwardly revised 425,000 in the prior week -- far fewer than the 417,000 economists had expected -- also helped to drive Treasury prices lower and took pressure off the Fed.
``The fact that jobless claims did come down is more of a positive sign for the economy,'' said James Caron, fixed-income strategist at Merrill Lynch.
In remarks given at a banking conference, Fed Chairman Alan Greenspan (news - web sites) did not address monetary policy or the economy.
By 10 a.m., two-year Treasury notes (US2YT-RR) fell 3/32 to 99-25/32, yielding 4.12 percent. Five-year notes (US5YT-RR) were off 9/32 at 99-20/32, yielding 4.71 percent.
Benchmark 10-year notes (US10YT-RR) fell 13/32 to 98-9/32, yielding 5.23 percent, while 30-year bonds (US30YT-RR) were off 22/32 at 95-5/32 to yield 5.72 percent.
About a half an hour after the opening bell, the technology-weighted Nasdaq Composite Index (^IXIC - news) rose 30 points, or about 1.4 percent, to 2,185. The blue-chip Dow Jones industrial average (^DJI - news) rose 110 points, or 1 percent, to 10,977.
A separate report that showed import prices tumbled 0.5 percent in April, compared with a revised 1.5 percent fall in March, did not affect the Treasury market.
Longer-dated Treasuries rose Wednesday following an $11.9 billion corporate bond sale by WorldCom (NasdaqNM:WCOM - news), the largest ever by an American company, and an auction of $9 billion in 10-year Treasury notes.
Both auctions drew strong interest from bond market participants but corporate bond traders said the new WorldCom bonds had given back most of their gains by early Thursday.
Separately, the Bank of England, citing in part weaker prospects for the world economy, cut the official U.K. interest rate by 0.25 percentage point to 5.25 percent, its third such move this year. The cut, which was widely expected, did not affect the market.
The benchmark federal funds U.S. overnight bank lending rate is 4.50 percent. |
