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To: Jorj X Mckie who wrote (46772)	6/13/1999 11:18:00 PM
From: NickSE	Respond to of 86076

RealMan has been getting around alot lately. Maybe he has a twin??? -ng- Bond bulls flee as US Treasuries enter bear market infoseek.go.com NEW YORK, June 11 (Reuters) - U.S. Treasuries have entered a bear market, with buyers in deep hibernation and sellers clawing their way out of a market afraid of a Fed rate hike and extremely vulnerable to rumours. ''It's a bloodbath again today,'' said Vincent Verterano, head government bond trader at Nomura Securities International Inc. ''And the market doesn't look like it wants to get better.'' Less than three weeks before Federal Reserve policy makers meet, ''The market is very sensitive,'' said Joel Kent, economist at Lehman Brothers Inc. ''The market is looking for negative things right now.'' Already jittery ahead of next week's critical May consumer inflation report and Congressional testimony from Fed Chairman Alan Greenspan, Treasuries slumped Friday on rumours the Fed was meeting to either raise rates or bail out a large hedge fund. The 30-year bond yield spurted to a 19-month high of 6.16 percent on Friday, two days after it pierced 6 percent for the first time in more than a year. Ten-year note yields, the peg for many mortgages and long-term consumer loan rates, broke above 6.0 percent to their highest level since October 24, 1997 -- the session before the stock market plunged. Treasuries yields have surged nearly 3/4 of a percentage point over the past six weeks. Such an unusually large move for such a short time period reflects market expectations of more than one Fed rate hike and fears of accelerating inflation. Some traders think the selling has gone overboard. ''This is an absolutely 'I don't care if they are cheap, I have to sell' market,'' Verterano said. Selling fed on itself, pushing prices lower and yields higher even though players said they doubted the rumours were true, the Fed declined comment and the Tiger Management LP hedge fund company denied it was having trouble meeting investor redemptions. Hedge funds, and Japanese accounts unwinding yen-carry trades as the dollar eroded, were the biggest culprits in the Treasuries sell-off, traders said. A yen-carry trade is when an investor borrows in yen at low Japanese interest rates, then uses the proceeds to buy dollar-denominated assets like Treasuries, which yield much more than Japanese government bonds. A sudden rise in the yen would undermine that trade, which has been the case this week. The market has officially entered a bear market, Verterano said. The key measure, he said, is when the price of the 30-year cash bond drops 10 points between the time it is first auctioned and the time the next bellwether 30-year bond is sold. The bond on Friday had plunged 12 points since its February auction. No end of the selling is in sight, he said. ''That's always the problem with bear markets; they take on a life of their own and when it gets ugly, it gets difficult to explain,'' said Steve Wood, director of financial markets research at Banc of America Securities LLC. ''At some point the market gets oversold and then it starts to improve,'' he added. ''But I am not sure we're there yet where the market is oversold enough to see a reversal.'' The bond market's freefall is a stunning turnaround from late last year, when prices rose enough to shove yields on 30-year bonds down to an all-time low of 4.69 percent. At that time, fears of a global financial market meltdown forced the Fed to lower interest rates three times -- once between Federal Open Market Committee policymaking meetings -- to add liquidity. By early 1999, market players said nirvana was near. Global market chaos seemed to stabilise, the Treasuries safe-haven rally was less vehement and yields rose back to what were considered more consistent with U.S. economic fundamentals. A Fed rate hike was the farthest thing from the market's mind. That all changed on April 30 when the government said the economy grew at a surprising 4.5 percent rate in the first quarter (later it was revised to 4.1 percent), which was well above expectations. Subsequent economic reports showed little in the way of a slowdown from the robust growth, with consumers continuing to shop till they drop. Consumer spending was fuelled in part by a high-flying, record-setting stock market. Rate hike fears turned most serious after the May Consumer Price Index spiked up 0.7 percent, and CPI excluding food and energy prices gained 0.4 percent. Since then, the Fed shifted to a tightening bias from a neutral stance, Fed officials have warned of the need to be vigilant against inflation and there have been signs of an economic recovery beginning in Japan. The Fed next meets on June 29 and 30 and the market will remain vulnerable until then, with a bias toward weakness. ''I keep asking myself what is going to change this,'' Wood said.