U.S. Bond Yields at 20-Year Low
08/27/98
NEW YORK (AP) -- Bond prices soared Thursday, pushing long-term bond yields to 20-year lows, as further economic deterioration in Russia caused a flight out of world-wide stock markets and into the safe haven of U.S. Treasury bonds.
The 30-year Treasury benchmark bond rose 1 3-32 point, or $10.94 per $1,000 value, pushing its yield, which moves opposite the price, down to 5.34 percent from 5.42 percent late Wednesday. The yield hasn't been that low since the government began regular sales of the 30-year bonds in 1977.
The long-bond yield has been trading for several days below the Federal Reserve's 5.5 percent target for the federal funds rate, at which Fed-member banks make overnight loans to each other, indicating investors are becoming optimistic about a cut in interest rates.
The fed funds rate stood late Thursday at 5.56 percent, down from Wednesday's 5.38 percent.
U.S. bonds rose as the Russian economy continued its disintegration. The Russian central bank halted dollar sales for the rest of the week in a bid to conserve hard currency for key imports and other urgent needs, rather than spending it on attempts to prop up the weak ruble.
And even after the drafting of an agreement that President Boris Yeltsin will be forced to share decision-making powers, the Kremlin moved to quashed speculation that Yeltsin will resign.
Russian stocks plummeted 17 percent after trading was twice suspended, causing stock markets from Tokyo to Mexico City to crater. In New York, the Dow Jones industrial average fell 357.36 to 8,165.99, a loss of 4.2 percent.
The dollar rose in European trading but fell in New York in sympathy with U.S. stocks. The dollar was trading late in the day at 1.7941 marks, down from 1.8061 late Wednesday.
Robert Brusca, chief economist at Nikko Securities Co. International Inc., said the dire political situation in ''Russia has... caused people to reassess their risk and exposure in a lot of other
emerging markets.''
This is especially true of U.S. commercial and investment banks, which have taken their substantial winnings in the U.S. stock market and invested them, in part, in risky derivative securities tied to
enterprises in Russia and other emerging markets.
''They've been doing a lot of trading and derivative stuff based on what I call WAG strategies--wild-ass guesses,'' Brusca said. The gains in the bond market represent ''a flight to quality, a flight out of equities, a flight from crazy investment schemes.''
In the broader market, prices of short-term Treasury securities rose between 11/32 and 5/16 point, while intermediate maturities were up between 21/32 point and 1 point, reported Bridge Telerate, a financial information service.
The Lehman Brothers Daily Treasury Bond Index, reflecting price movements on bonds with maturities of a year or longer, rose to 1,312.21 from 1,305.21.
Yields on three-month Treasury bills were 4.99 percent as the discount fell 0.09 percentage point to 4.83 percent. Six-month yields were 5.04 percent as the discount fell 0.05 percentage point to 4.86 percent. One-year yields were 4.96 percent as the discount slipped 0.13 percentage point to 4.73percent.
Yields are the interest bonds pay by maturity, while the discount is the interest at which they are sold.
In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds rose 1/4 point to 125 21/32. The average yield to maturity fell to 5.12 percent from 5.13 percent.
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