U.S. Treasuries Fall After Fed Leaves Interest Rates Unchanged
Bloomberg News
Wed, 28 Jun 2000, 9:20pm EDT
U.S. Treasuries Fall After Fed Leaves Interest Rates Unchanged
By Marianne Sullivan
New York, June 28 (Bloomberg) -- U.S. Treasuries fell as the Federal Reserve signaled it might raise rates later this year to keep inflation from accelerating, even as it left its overnight interest-rate target unchanged today at 6.5 percent.
``The Fed is still saying that the economy is growing at a pace that presents the risk of faster inflation,'' said Carlton Neel, who manages $1.4 billion at Phoenix/Zweig Advisors LLC. ``It doesn't take the Fed out of the picture,'' said Neel, who expects the Fed to raise the lending target to 7 percent by year-end.
The most-actively traded 30-year bond fell 14/32, or $4.38 per $1,000 face amount, to a price of 103 31/32. Its yield rose 3 basis points to 5.96 percent. The most active 10-year note fell 1/8 to 102 7/8. Its yield rose 2 basis points to 6.1 percent.
Treasuries had fallen more in earlier trading, with the 30- year bond down as much as 7/8, after a report of a bigger-than- expected rise in durable goods orders bolstered expectations the Fed will raise rates in coming months to rein in growth.
Bonds pared some losses after the Fed announcement because the central bank ``had already telegraphed to the market what it was going to do,'' said Dan Bernstein, who helps oversee $25 billion at Bridgewater Associates In Wilton, Connecticut.
In a survey two weeks ago of economists at the 29 primary dealers, those firms that deal directly with the Fed, all expected the central bank would leave rates unchanged. The Fed has raised its federal funds target six times in the past year, by a total of 1.75 percentage points, in a bid to restrain growth and keep a lid on inflation.
`Inflation Pressures'
A slew of economic reports the past six weeks suggested those rate increases have done just that, yet the Fed remained wary.
The policy-setting Federal Open Market Committee ``believes that the risks are weighted mainly toward conditions that may generate heightened inflation pressures in the foreseeable future,'' the Fed said in a statement after the rate decision.
Fed fund futures, a gauge of investor expectations about the federal funds rate, suggest most see a quarter-point increase at policy-makers' Aug. 22 meeting. While the implied yield on the September futures contract dropped 2 basis points to 6.715 percent, it still prices in most of a quarter-point increase. The October yield, at 6.795 percent, suggests investors see a rate rise by the Oct. 3 meeting as all but certain.
Treasuries fell after the government said orders for durable goods rose 6 percent after falling a revised 5.7 percent in April, Commerce Department figures show. Analysts surveyed by Bloomberg News expected a 2.9 percent increase in May.
``While the economy is slowing, it may not be slowing enough to say the long line of interest-rate increases is over,'' said Fred Ingerman, who's been buying corporate bonds for the $6.5 billion he invests at Chicago Trust Co. ``The bond market got ahead of itself'' with the 2.4 percent return since mid-May for Treasuries due in more than a year, he said.
Only the most active two-year note rebounded, rising 1/32 to 100 9/32, after the Treasury Department's $10 billion sale of two- year notes drew strong demand and as the Fed held rates steady. The note's yield fell 3 basis points to 6.46 percent.
Deutsche Telekom
Investors sold Treasuries also as a record $14.57 billion corporate bond sale from Deutsche Telekom AG came to the market. The Treasury Department's $10 billion sale of 2-year notes added to the supply pressure, said Mark Mahoney, chief Treasury strategist at UBS Warburg in Stamford, Connecticut.
Chicago Trust's Ingerman said he favors corporate securities for their higher yields over Treasuries and because he expects the yields will drop faster than those of government debt.
``The corporate market has already made a bit of a recovery (on) the idea that interest rates aren't going to zoom up and there's a little more stability in the equity market,'' said Ingerman, who didn't buy Deutsche Telekom bonds, opting instead for other corporate debt that has better potential to rally relative to Treasuries, he said.
Among investors who did buy debt from Europe's largest phone company was Kenneth Taubes, co-director of the $1.5 billion in fixed income at Pioneer Investment Management in Boston. He called the securities ``cheap.''
Treasury Buyback
The Treasury Department's announcement that it will repurchase up to $2 billion of 30-year bonds tomorrow didn't help to lift the benchmark security from losses.
The Treasury said it will buy back securities that mature between February 2019 and August 2023 and that pay interest between 6.25 percent to 8.875 percent.
Additional repurchases are scheduled for the third and fourth weeks of July and the Treasury will announce further plans at its quarterly financing news conference on Aug. 2.
The government, which plans to use its surplus to repurchase up to $30 billion of outstanding bonds this year to pay down the national debt, has bought back $13 billion in securities since March.
Best Regards, J.T. |
