Japan revives idea of a more aggressive Federal Reserve -->
Stocks, Japanese data lift Treasurys
By Rachel Koning, CBS.MarketWatch.com
Last Update: 4:14 PM ET June 11, 2001
NEW YORK (CBS.MW) - Treasurys shot higher on Monday after dour
Japanese economic news and shaky U.S. technology stocks revived
ideas for a more aggressive Federal Reserve in coming weeks.
Japanese gross domestic product dipped 0.2 percent in the first three months of
2001 and sparked fears the world's second largest economy could be falling into
its fourth recession of the past decade. Read more.
Investors are concerned prolonged weakness for Japan could delay a projected
recovery in the United States.
If so, the Federal Reserve may have to cut interest rates more than the widely
anticipated quarter-point reduction most are looking for at the central bank's
upcoming meeting. The group's target rate stands at a seven-year-low 4 percent
after a series of aggressive rate cuts since January.
Technology stock weakness wasn't helping the domestic economy's prognosis.
Profit warnings were taking a toll on the broader indices. The Nasdaq Composite
($COMPQ: news, msgs, alerts) fell 44 points, or 2 percent, to 2,170. The Dow
Jones Industrial Average ($INDU: news, msgs, alerts) lost 54 points, or 0.5
percent, to 10,922. Read more in Market Snapshot.
At last check, a Fed-sensitive 2-year note rose 3/32 at 100 9/32, dropping its
yield 5 basis points from the previous close to 4.10 percent.
A 5-year note was up 8/32 at 99 even to yield 4.85 percent or a loss of 6 basis
points.
The 10-year Treasury note rose 14/32 to 97 25/32 to yield ($TNX: news, msgs,
alerts) 5.29 percent, down 6 basis points.
And a 30-year government bond added 20/32 at 95 16/32 to yield ($TYX: news,
msgs, alerts) 5.69 percent or a loss of 5 basis points.
Yields fall when prices rise because investors sacrifice some return by paying
up for a desirable fixed security.
Dallas Fed President Robert McTeer, speaking to a regulatory conference in
Michigan, repeated his expectation for the economy to start to claw its way
toward recovery.
"We probably are at or near the bottom and we will probably not tip into
recession," McTeer said. "I don't know when we'll speed up or how fast, but I
see no real reason why it won't be a good bit. I see no reason that once these
imbalances are worked off that we won't go back to a fairly vigorous economy.
McTeer does not participate in interest-rate policy voting this year because
regional presidents vote on a rotational basis.
After the market closes, Boston Fed President Cathy Minehan will speak at a
Fed conference at 7:30 p.m. and Fed Governor Edward Gramlich speaks on
"National Saving and Treasury Debt" at 7:30 p.m.
While no data is due out Monday, the week is loaded with key economic
reports, including May retail sales, the consumer and producer price indexes,
industrial production, capacity utilization and the June Michigan Consumer
Sentiment Index. View Economic Preview and economic calendar and
forecasts.
Mortgage bonds rose but spreads to Treasurys tightened amid prepayment
concerns should a grim economy in coming months force the Fed to continue to
cut rates.
In recent action, a 30-year Fannie Mae with a 6.50 percent coupon was priced
at 98 26/32 and offering a bond-equivalent yield of 6.729. A comparable Ginnie
Mae was priced at 99 9/32 to offer a bond-equivalent yield of 6.669 percent.
In the forex market, dollar/yen rose 0.7 percent to 121.69 while euro/dollar
edged down 0.1 percent to 0.8495. |
