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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (22555)	8/9/1999 9:13:00 PM
From: Les H	Read Replies (1) \| Respond to of 99985

TALK FROM TRENCHES: AUCTION CONCESSION SOUGHT; ANVILS FALLING By Isobel Kennedy, Robert Ramos, Kim Rellahan NEW YORK (MktNews) - U.S. Treasury prices are lower across the curve again Monday morning, with players expecting another week of rough sledding as the refunding of fives, tens and bonds gets underway. Retail sales and producer prices on Thursday and Friday are awaited with trepidation. The refunding kicks off with the five-year sale tomorrow and sources think it will take more of a price concession to underwrite the issue. Since the Street is not fully set up for this auction, some think the new five-year will have to back up until it provides a 6% coupon. Will that be enough to attract retail buyers? Some say customer accounts feel the current environment provides the opportunity to "buy value". But one well known West Coast money manager told Market News International on Friday the Treasury market is priced for one or two more Fed tightenings. He also said it is too cheap to short but the "atmospherics" are too negative to buy, so he has no duration view. He believes the market has priced in enough negative business cycle, inflation, and Fed "stuff" that he is not on the bear train. But on the bull side he doesn't like the market. "You're supposed to buy cheap anvils, not falling anvils," he says. The long bond auction on Thursday will probably be the easiest sell, traders say. The reduction of 30-year sales to twice a year from three times will help the issue. And the large hedge fund that loaded up on when-issued bonds just north of 6.00% on Friday could also be lending support for the issue, they say. Looking at the bigger picture, underwriting supply in the face of further Federal Reserve tightenings is always difficult. A 25 bps rate increase at the August 24 FOMC is considered a done deal by many. And there are some economists out there who are even predicting 50 bps. Over in Europe, fund managers are also worried about higher rates due to strengthening global economies, according to the results of a Merrill Lynch survey. European fund managers are holding back from making new investment decisions until the outlook for U.S. interest rates becomes clearer, said Bryan Allworthy, European equity strategist for Merrill Lynch. Late last week, in a London Financial Times currency column, some unnamed bears actually attached some figures to their forecasts for higher global interest rates. After the dust has settled, they speculate rates in the United Kingdom and the United States will be 150 bps and 125 bps higher, respectively. And the European Central Bank may end up jacking rates a total of 100 bps, they say. What's new in Russia? Not much. President Yeltsin sacked Prime Minister Stepashin after only three months in office. It is the fourth prime minister axed in eighteen months. On the news, there were ongoing rumors in Moscow that Yeltsin would like to create a political crisis because it would allow him to postpone next year's presidential vote and remain in office. Over in Asia, KCNA, North Korea's official wire service, said Monday morning it is "only a matter of time" before war breaks out on the Korean peninsula. There was also vague talk in the foreign exchange markets that China will make a major statement Tuesday linked to Taiwan. What it could be about nobody seemed to know but it was enough to spark renewed speculation about a Chinese devaluation. And maybe the China/Taiwan and South Korea/North Korea hostilities are more serious than people in the West think. It was reported Monday that China will not allow Pope John Paul II to make his planned visit to Hong Kong in November because of the Vatican's diplomatic ties with Taiwan. NOTE: Talk From the Trenches is a daily compendium of chatter from Treasury trading rooms offered as a gauge of the mood in the financial markets. It is not hard, verified news.