Top Financial News
Tue, 08 Jun 1999, 4:15pm EDT
U.S. 30-Year Treasury Bond Yields Rise to 6% for 1st Time Since May 1998
By Wes Goodman, Beth Williams and Perri Colley McKinney
U.S. Bonds Fall After Comments by Poole, Broaddus on Inflation
New York, June 8 (Bloomberg) -- U.S. bond fell, briefly
boosting yields above 6 percent for the first time since May
1998, after comments by two Federal Reserve officials fanned
speculation that the central bank will boost interest rates soon.
William Poole, president of the Federal Reserve Bank of St.
Louis, said he ''would share the view'' that the odds have
changed in the direction of higher inflation. Poole spoke in
Massachusetts at a Boston Fed Bank conference.
In Amelia Island, Florida, Richmond Fed President Alfred
Broaddus said a report last month showing a jump in consumer
prices in April was ''the most troubling'' in some time.
A rate increase as early as this month is ''a definite
possibility,'' and that hurt bonds, said Charles Ullerich, who
helps oversee $2 billion of bonds at Pilgrim Funds in Phoenix.
The 30-year bond fell 10/32, or $3.13 per $1,000 security,
to 89 25/32. Its yield rose 2 basis points to 5.99 percent at the
day's end. Yields on two-year notes, the most actively traded
Treasuries, rose 1 basis point to 5.55 percent.
Yields on 30-year Treasuries have risen more than 85 basis
points this year as investors fretted that eight years of
sustained economic growth will boost inflation and prompt a Fed
rate increase. Fed policy-makers next meet June 29-30.
Tough Time Rallying
''We're going to have a tough time rallying without seeing a
slowdown in the economy that puts the Fed back into a neutral
position,'' said Mark MacQueen, who helps manage $425 million at
Sage Advisory Services Ltd. in Austin, Texas. The Fed warned last
month that it is prepared to boost rates to control inflation.
The 30-year Treasury also slipped back as the dollar
declined against the yen and euro, said William Kirby, co-head of
government bonds at Prudential Securities Inc. The U.S. currency
dropped more than 1 percent against both currencies and touched
its lowest level against the yen in about six weeks.
A weaker dollar sours overseas investors on U.S. securities
because it can bring a loss when proceeds are converted into home
currencies.
A planned $5 billion debt sale by Freddie Mac, the No. 2
U.S. mortgage financier, also drew demand away from Treasuries,
some analyst said.
About $38.9 billion of Treasury bills, notes and bonds
traded through most of the major brokers by 3 p.m. New York time,
almost 41 percent less than the average for a Tuesday in the
second quarter of 1998, according to GovPX Inc., a bond pricing
service.
Inflation Figures
Investors get more information on inflation this week when
the government reports its May producer price index on Friday.
The May consumer price index, the nation's most-watched inflation
gauge, will be released June 16.
''Everyone's holding off until Friday,'' Prudential's Kirby
said.
Money managers are investing based on their forecasts for
the Fed. Sage's MacQueen, who expects a rate increase, is buying
triple-A-rated asset-backed securities, those backed by payments
on credit cards and auto loans. Those securities offer yields of
50 to 90 basis points more than Treasuries, a cushion in case the
Fed boosts rates and bond prices fall, he said.
Eric Peterson, who helps manage $550 million at Talon Asset
Management in Chicago, says an increase is far from a sure thing.
He sees value in Treasuries. ''Yields warrant a revisiting''
by buyers, he said. He sees 30-year rates falling as much as 45
basis points by the end of the year, and he's buying seven-year
notes.
Corporate Bonds
Meantime, Freddie Mac and Williams Communications Group Inc.
are expected to lead a handful of billion-dollar sales in coming
days.
Freddie Mac, a frequent borrower, plans to sell $5 billion
of triple-A rated reference notes, divided between $3 billion of
two-year notes and an additional $2 billion of 5 3/4 percent 10-
year notes.
Williams Communications, a unit of Williams Cos. -- the
largest U.S. natural gas transporter -- prepared to issue $1.3
billion of 10-year senior notes in the junk-rated bond market.
Marsh & McLennan Cos., the world's largest insurance broker,
plans to sell $1 billion of notes.
Diageo Plc, the world's largest maker of alcoholic
beverages, plans to issue $1 billion of five-year notes.
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