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Strategies & Market Trends : CANSLIM - COAST TO COAST -- Ignore unavailable to you. Want to Upgrade?

To: Bruce A. Brotnov who wrote (5111)	8/5/1999 2:36:00 PM
From: ST Trader	Read Replies (1) \| Respond to of 6445

Bruce, I found an interesting article in the WSJ, that should help the case for lower interest rates in the future!!! BTW: I am beginning to buy a few stocks here and there, as I believe that the worst is over for the nasdaq!!! Although the report tomorrow might make me change my mind again!!! :-) Scott Treasury May Repurchase Bonds For First Time in Over a Century By MICHAEL M. PHILLIPS and GREGORY ZUCKERMAN Staff Reporters of THE WALL STREET JOURNAL WASHINGTON -- Awash in tax revenue from an 8 1/2 -year economic boom, the Treasury Department announced it is proceeding with a plan under which it may buy back some of the $3.6 trillion in bonds it has sold to the public. Treasury Prices Advance on Supply Reduction Plan For two years, the Treasury has been reducing debt by issuing fewer new securities as old ones mature. The department said Wednesday that it expects to cut privately held marketable debt by $11 billion this quarter, bringing the overall reduction in government debt to $87 billion in fiscal 1999. But it has been at least a century since the U.S. offered cash for securities that haven't yet matured, although the government swapped new bonds for old bonds during the 1960s and early 1970s. President Clinton quickly seized on the announcement to draw a sharp line between his plans for the federal surplus and a Republican alternative centered on tax cuts. "In the past seven years, we've balanced Washington's books -- we've cut its credit-card balance," Mr. Clinton told reporters in the White House Rose Garden. "Now let's refinance our nation's mortgage and then wipe the ledger clean. Paying down the debt creates wealth, creates jobs, creates opportunity. It's the right and responsible thing to do, and we have the chance of a lifetime to do it." Cheers From Investors Bond-market investors cheered the Treasury decision, which had long been the subject of speculation among traders. "Reducing supply in the market is definitely a long-term positive, though the effects may not be felt for a while," said Jim Nealis, head government bond trader at PaineWebber Inc. The administration didn't actually commit to buying back bonds. What Treasury Secretary Lawrence Summers announced was a proposed mechanism for doing so, through "reverse auctions" in which bondholders would voluntarily submit bids telling the government how much they would want for their U.S. securities. If the prices were acceptable, the Treasury would buy them back. The Treasury hopes to complete work on the plan by Jan. 1. But the announcement is a strong hint that the government intends to go ahead with buybacks to put its excess cash to use, shorten the maturity of its debt outstanding and reduce borrowing costs. By reducing the government's appetite for borrowed money, the plan would reduce interest rates for businesses and consumers, and the government itself, administration officials argue. The Treasury estimates that a 0.03-percentage-point reduction in interest rates saves it more than $1 billion a year. Portrayed as Tax Cut With congressional Republicans banking on a $792 billion tax-cut plan that is expected to clear Capitol Hill this week, the White House portrayed the debt-buyback plan as a sort of tax cut for American families. "Reducing the supply of Treasury debt held by the public brings large benefits for our economy," Mr. Summers said. The Treasury also announced other changes in the way it issues securities now that its borrowing needs are reduced. The department, for instance, will no longer auction 30-year bonds in November, just in February and August. That decision surprised the market and helped spark a rally in longer-term Treasurys, as the specter of reduced supply boosted the allure of the 30-year bond. In late trading Tuesday, the benchmark 30-year bond was up 25/32, pushing the yield down to 6.094% from 6.157% on Tuesday. "The buyback decision reinforces the scarcity value of Treasurys and caused a lot of buzz in the market," said Larry Dyer, government strategist at Credit Suisse First Boston in New York. "But the dropped November auction was the real surprise and it helped the long-bond rally." The Treasury also plans to study the possibility of reducing the frequency of its sales of one-year bills and two-year notes. Even as they cut their own borrowing, Treasury officials are keen on maintaining the liquidity of government-securities markets. In reducing the number of bond offerings, the government would increase the size of the remaining sales. Investors and financial institutions keep a close eye on government-bond yields as a guide to other interest rates, including the cost of a 30-year mortgage.