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Top Financial News
Thu, 22 Apr 1999, 8:41pm EDT
U.S. Bonds Post Worst Decline in 7 Weeks; U.S. Dollar Falls vs Yen
U.S. Bonds Post Worst Decline in 7 Weeks; Dollar Falls vs Yen
New York, April 22 (Bloomberg) -- U.S. bonds posted their
worst loss in more than seven weeks as a stock market rally
reduced demand for less-risky Treasury debt.
''The bond market's taking its cue from the stock market,''
said Scott Grannis, who helps manage about $50 billion at Western
Asset Management in Pasadena, California. Grannis said the gains
in stocks are another reflection of the economy's strength,
though he sees growth slowing in the months ahead.
The 30-year Treasury bond fell 1 2/32, or $10.63 per $1,000
security, to 94 31/32, marking its worst one-day plunge since
March 1. Its yield rose 8 basis points to 5.60 percent. Yields on
two-year notes, the most actively traded Treasuries, rose 6 basis
points to 5.02 percent.
In late trading, the dollar fell to 119.54 yen from 119.85
yesterday in New York. The euro hovered near its lowest level
against the dollar at $1.0634 from $1.0584 on speculation the war
in Yugoslavia will escalate and keep investors away from Europe.
The Dow Jones Industrial Average rose 145.76, or 1.4
percent, to a record close of 10,727.18. The Standard & Poor's
500 Index gained 22.70, or 1.7 percent, to 1358.82, also a
record. The Nasdaq Composite Index jumped 71.94, or 2.9 percent,
to 2561.02.
Bonds
Bonds sank as stocks climbed for a third day, helped by
better-than-expected earnings at International Business Machines
Corp.
Investors are ''more confident in stocks and moving out of
bonds'' into equities, said Charles Reinhard, a market strategist
at ABN Amro Inc. Bonds climbed Monday after stocks tumbled, only
to lose ground as stocks rebounded.
Also weighing on bonds were further gains in crude oil
prices -- seen as a harbinger of inflation -- and bond sales of
more than $2 billion by borrowers including Brazil, traders said.
As bonds fell, traders sifted through remarks by Federal
Reserve officials -- including Chairman Alan Greenspan -- for
clues about the central bank's view on the economy, inflation and
interest rates.
Greenspan offered no hints about his views as he testified
to a Senate Banking Committee on emerging market economies where
the U.S. dollar is used as the main currency.
In separate comments, San Francisco Fed President Robert
Parry said that without signs the economy is slowing, Fed
officials would ''have to be more concerned about inflation
prospects, and that could have policy implications.''
Traders took little notice of a report showing jobless
claims fell 5,000 last week to a seasonally adjusted 314,000,
suggesting the job market remains healthy.
A report next week will probably show the economy grew at a
3.4 percent annual pace in the first three months of the year,
after expanding at a 6 percent pace in the fourth quarter of
1998, according to economists surveyed by Bloomberg News.
The economy's strength has yet to spur inflation, which may
keep the Fed from changing interest rates. The central bank left
its target for overnight lending between banks unchanged at 4.75
percent since November.
''There's no chance of the Fed moving rates anytime soon,
whether it's up or down,'' said George Adell, a trader at
Philadelphia-based Starboard Capital Markets Inc. ''With a steady
Fed, what is your incentive to get on board as far as Treasuries
go?''
Some investors fret that an almost 50 percent rise in crude
oil prices since the year began may lead to faster inflation.
Crude oil today rose 25 cents to $18.17 a barrel on the New York
Mercantile Exchange. Prices have rebounded from a 12-year low of
$10.35 late last year as producers intensified efforts to wipe
out an oil glut.
Bonds may also come under pressure as Brazil leads borrowers
looking to raise money in the bond market. Brazil doubled its
first bond sale in a year to $2 billion, while Sprint Capital
Corp., a unit of No. 3 U.S. long-distance company Sprint Corp.,
today said it's planning to sell $3 billion in the bond market,
too. That follows debt sales of more than $11 billion so far this
week by borrowers including Chile and Coca-Cola Bottling Co.
Dollar
The dollar slipped against the yen as traders played down
the likelihood that Group of Seven finance ministers will try to
influence the dollar-yen exchange rate when they meet next week
in Washington.
''Dollar-yen has been trading within a couple percentage
points of 120 for the past few months, and that seems to be
reasonable for most of the major parties involved,'' said Bob
Lynch, a currency strategist at Paribas Corp.
Japanese exporters and some traders also sold dollars to
take advantage of its 2 percent rise this week, said Jim Nagel, a
trader at Manufacturers & Traders Trust in Buffalo, New York.
''Japanese exporters found this was a decent level to sell
dollars,'' Nagel said. ''That's put a cap'' on the U.S. currency,
which he said would trade in a narrow range between 119 and 120
yen in coming days.
Japanese finance officials in past weeks have repeatedly
called for a weaker yen, which would help the economy by lowering
export prices. Traders have speculated the officials may convince
their G-7 counterparts to back yen-weakening efforts when they
meet Monday. The G-7 industrial nations group the U.S., the U.K.,
Japan, Germany, France, Italy, Canada.
Today, the Japanese Nihon Keizai newspaper said, without
citing sources, that G-7 finance ministers and central bankers
are likely to endorse the current dollar-yen exchange rate and
may agree to jointly intervene in the currency market if there is
volatile movement.
The longer the conflict over Yugoslavia's Kosovo province
drags on, the greater the burden to already-strapped economies of
the 11-nation single currency union.
Yesterday, the U.S. said it will back top military and
political leaders of the North Atlantic Treaty Organization if
they want to expand the war against Yugoslavia to include the
possible use of ground troops.
NATO Secretary General Javier Solana authorized NATO
commanders to revise and update plans for a possible ground
invasion of Kosovo, the Washington Post reported, citing a
telephone interview with Solana.
''NATO officials say they are closer to using ground troops
in the Balkans, which has hurt the euro,'' said Paribas' Lynch.
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