(CBSMktWatch) U.S. Treasury bonds struggling again
Poor equity market performance, weak dollar to blame
By Daniel F. Floyd
Last Update: 10:51 AM ET July 16, 2002
NEW YORK (CBS.MW) -- U.S. Treasury securities continued losing value on Tuesday, even as major stock indices registered significant losses early in the session.
Federal Reserve Chairman Alan Greenspan told Congress on Tuesday that the economy is fine, but corporate accounting scandals could prevent a full recovery.
"The fundamentals are in place for a return to sustained healthy growth," Greenspan said. He endorsed strong measures by the government and the private sector to police and punish corporate fraud.
The chairman posited that the economy will grow 3.5 to 3.75 percent this year and up to 4 percent next year, with low inflation and declining unemployment.
Ken Mayland, an economist with ClearView Economics noted that the trend for last two weeks has been for investors to sell stocks and buy Treasury securities.
How low can Treasury yields go, when future prospects for the economy are good? There will be a "cyclical rebound of price pressures," he explained.
The Federal Reserve has said the very accommodative monetary policy it adopted last fall will not prove compatible with long-term growth (i.e., they will raise rates at some point in the future).
A weaker dollar is weighing on the market, partly because the large trade deficit requires financing, Mayland pointed out.
If people want to invest in U.S. assets, the dollar's value will rise, but interest rates will not. If funding does not come through investment, the dollar will fall and interest rates will rise, Mayland suggested.
The price of the 2-year note fell 1/32 from the previous session, yielding 2.55 percent, up one basis point. Meanwhile the price of the 5-year note ($FVX: news, chart, profile) held steady, yielding 3.80 percent.
The benchmark 10-year note ($TNX: news, chart, profile) also was unchanged from the prior session at 101 29/32, yielding 4.63 percent.
The 30-year government bond ($TYX: news, chart, profile) slipped 10/32 to 99 20/32 with a yield of 5.40 percent, up two basis points.
Fixed-income and equity markets posted losses, in spite of a report from the Federal Reserve that industrial production rose 0.8 percent in June, the largest monthly increase since October 1999, as factories produced more automobiles and utility firms generated more power. See full story.
In the currency sector, the dollar continued its unrelenting descent against the yen and euro. The latter sprinted above parity with the dollar for the first time since February 2000.
The U.S. currency slid 0.3 percent to 115.90 yen, while the euro jumped 0.7 percent to $1.01.
In morning trading, equities plunged as Alan Greenspan was testifying. The Dow Jones Industrial Average ($INDU: news, chart, profile) plummeted more than 130 points to 8,508, while the Nasdaq Composite ($COMPQ: news, chart, profile) gained 5 points to 1,387. |
