US Treasuries end higher, 30-yr yield falls to low.
By Ellen Freilich
NEW YORK, June 11 (Reuters) - A strong dollar, safe haven buying
and the belief that the Federal Reserve cannot raise interest
rates soon propelled U.S. Treasuries prices higher on Thursday,
sending long-term interest rates to record lows.
Buying was broad-based, players with short positions were forced
to cover them and the dollar was noticeably strong, said Mark
Fitzpatrick, senior vice president and head government trader at
Nikko Securities Co.
Fitzpatrick also pointed to remarks by international financier
George Soros ''talking about a global recession.''
Soros told a Stockholm International Peace Research Institute
conference that the Asia crisis would take longer to resolve than
was first thought, ''so there's a possibility of a worldwide
slowdown.''
But dollar strength, safe haven buying spawned by turbulent
equity markets, technical factors, and faint prospects for a Fed
rate hike in the near future headlined the bond market's advance,
traders said.
''Greenspan's testimony (on Wednesday) was great,'' said one
trader. ''Oil's down, the CRB is down, the dollar's great. It's a
very powerful confluence of positive influences.''
Technical factors also played a role, analysts said.
''The technical trend was very significant,'' said Gregory Carr,
market analyst at A.G. Edwards & Sons Inc. ''The market moved
because the trend was good. You see this every time you break out
of range. A lot of short-covering takes place and the market
moves higher.''
Carr said the next resistance level was nearby between 5.625 and
5.65 percent on the 30-year bond yield.
"We're almost there," he noted.
Little stood in the way of the bond market's inclination to set
caution aside on Thursday, analysts said.
The May U.S. Producer Price Index (PPI), due Friday, is expected
to be up 0.1 percent, which would be a friendly reading for the
bond market.
''Another reason for the positive trend is we're going to get the
PPI report,'' said Carr. ''You just don't have much fear of being
long. Technically we're solid. Fundamentally we're solid. The
bottom line is inflation is not a worry for now.''
The market only briefly dipped into the minus column on Thursday.
That was early in the session after the government reported that
retail sales rose 0.9 percent in May, a little bit more than
economists' average forecast.
Also, the Labor Department reported that new jobless claims fell
to 315,000 last week, from 338,000 a week earlier.
But bonds quickly recovered as people bought the dip. Bonds also
rode the back of a strong dollar which climbed and then moved to
its highest level in nearly eight years against the yen after
Treasury Secretary Robert Rubin said the United States shared
Japan's concerns about the weak yen but the only remedy was
''restoring economic strength in Japan.''
In very late trade, the dollar hit a new eight-year high against
the yen as intervention fears faded.
"The market sees no reason not to go higher," said Carr.
A tumbling U.S. stock market and weakening commodity prices also
contributed to the bonds' upward push. On Wall Street, the
blue-chip Dow Jones Industrial Average fell 160 points, or 1.78
percent. The Commodity Research Bureau's (CRB) index fell 0.75 to
210.54.
The 30-year Treasury bond was priced at 106-24/32 at the 1500
EDT/1900 GMT futures close, up 24/32 to yield 5.65 percent, the
lowest yield for the 30-year bond since the Treasury began
issuing them in 1977.
Ten-year note yields dropped below the 5-1/2 percent federal
funds rate, ending at 101-13/32, up 18/32, to yield 5.44 percent.
Five-year notes climbed 13/32 to 100-6/32 to yield 5.46 percent.
Two-year notes rose 4/32 to 100-2/32, yielding 5.47 percent.
Three-month bill rates eased four basis points to 4.98 percent.
Six-month rates eased three basis points to 5.13 percent. Year
bill rates slipped five basis points to 5.10 percent.
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