U.S. Treasuries end lower on fear of
higher rates
By Ellen Freilich
NEW YORK, June 23 (Reuters) - U.S. Treasuries ended
lower for the fourth straight session on Wednesday as worries
about higher interest rates blackened players' mood.
''The pessimism is rampant,'' said William Sullivan, first vice
president and chief money market economist at Morgan Stanley Dean Witter. ''It's as if you never
had that benign CPI (Consumer Price Index report) last week. All the good will generated in the
market by the flat CPI has disappeared without the help of any specific news. It's sentiment at
work, and that's the worst kind of bear market you can have.''
In late trade, the benchmark 30-year Treasury bond was down 1-3/32 to 87-26/32. Its yield,
moving in the opposite direction of the price, was 6.15 percent, up from 6.06 percent at Tuesday's
close and its highest closing yield since June 11.
''We had a catharctic selloff in response to concerns about the Federal Reserve tightening
monetary policy over the next two or three months,'' said John Youngdahl, senior money market
economist at Goldman Sachs & Co.
The Federal Open Market Committee (FOMC) is scheduled to meet on June 29-30 and is widely
expected to raise interest rates by 25 basis points at that time.
''People speculated that there would be a 50-basis-point change in interest rates,'' Youngdahl
said.
The anxiety about near-term Fed rate hikes led to poor demand for the Treasury's $15.0 billion of
two-year notes sold on Wednesday, analysts said.
The Treasury sold the notes at a high yield of 5.754 percent in an auction where the ratio of bids
received to those accepted was 1.71, the lowest in a decade.
Buyers did detect some value in those yields, however, and prices on the new two-year notes rose
after the auction from the depressed levels at which they were initially sold.
''At 5.75 percent, you were being compensated for two (25-basis-point) Fed rate hikes so it was
reasonably attractive at that level,'' said Steve Bohlin, a fixed-income portfolio manager at Santa
Fe, N.M.-based Thornburg Funds, which has about $1.8 billion in fixed-income assets under
management.
''People are waiting for the Fed,'' said Henry Willmore, senior economist at Barclays Capital. But
he said soon the market would begin to focus on the next National Association of Purchasing
Management (NAPM) report, due on July 1, and the government's monthly payroll data, due on
July 2, and what those reports say about the strength of the economy.
''In effect, the market initially had an incorrect reading of (Federal Reserve Chairman Alan)
Greenspan's (congressional) testimony and that's been taken care of,'' Willmore said.
Analysts agreed that the market's path of least resistance was down, in the absence of new
information to guide it.
''Unless there is a reason not to do so, the market is going down. Period,'' said Anthony
Karydakis, senior financial economist at Banc One Capital Markets.
Even the market's mid-afternoon attempt to bounce from its lows was reversed in late trade.
In other late price action, five-year notes were down 13/32 to 97-6/32 to yield 5.92 percent and
10-year notes were down 24/32 at 96-3/32 to yield 6.03 percent.
At the front end, three-month bill rates were unchanged at 4.61 percent. Six-month rates were
down one basis point to 4.84 percent. Year bill rates were up three basis points to 4.91 percent.
Two-year notes were down 5/32 to 99-5/32, yielding 5.72 percent.
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