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

To: Haim R. Branisteanu who wrote (22853)	8/12/1999 2:30:00 PM
From: Les H	Read Replies (1) \| Respond to of 99985

TALK FROM TRENCHES: GOTTA HAVE THE BOND; BETTER TONE By Isobel Kennedy, Rob Ramos and Kim Rellahan NEW YORK (MktNews) - U.S. Treasuries got knocked down a bit after the stronger-than-expected retail sales Thursday morning then clawed their way back to unchanged as players focused on the bond friendly revisions to last month's report. Later in the morning, prices weakened as the Atlanta Fed business survey showed a huge jump in prices paid to 23.3 in July from 2.7 in June. But the real issue today is the 30-year auction. And prices are currently weakening further as traders set up for the last leg of the quarterly refunding. Most clearly agree that the bond is still overvalued compared to the rest of the curve. But offsetting this is the six-month absence of another bond auction. Or as one of the millennium-minded said, "It is the last bond of the twentieth century. For that reason alone, you gotta own it!" Another said current owners of this week's fives and tens are "in the money", giving them a cushion to bid more aggressively for today's bond. Over the last few days, the tone has turned more positive for most players. There are outright bulls who are looking for a post-summer rally that will last for several months. There are nervous bears who may fear further Fed tightenings but who are afraid to fight the trend, which as they say is always "your friend." There are also the confused, middle of the roaders who are calling themselves "mildly constructive in the short term." Then there a few rogues out there who are just outright bears. They say they would love to be bullish too but can't find any reason to be. One aptly pointed out, "Now lots of people are saying the Fed will only tighten one more time. Where are they getting this?" The people in the bear camp think the Street owns the auction and they're just "talking their positions." They areconcerned that no one seemed to "have a book" at the auction -- that is no retail accounts participated. They think the market now has a base and until it loses that base, prices will coast for a while. And if tomorrow's PPI is market friendly, the Street will have won and the post-refunding rally will get under way, they say. But if the number is bad -- watch out. The Street will dump this week's positions and there will be a re-auction. Speaking of retail, several players say they are beginning to see some real money accounts bottom fishing. Domestic bank portfolios did pick up some of the tens, they say. Other retail accounts are trying to get neutral or even a bit long, others report. Others report that European money managers are looking for dips to buy. Asian central banks were said to have bought the tens this week and there are rumors that Japan's Kampo bought as well. By the way, Japanese accounts were seen buying two-year agency paper this week and domestic retail was picking away at agency paper today, a source reported. Whether you're a bull or a bear, here is an interesting point a salesperson made on the short-term outlook. On any uptick tomorrow, he thinks players will unload their positions. Next week is a heavy vacation week because it is post-refunding, yet it is also a pre-FOMC week and many will unload positions just for this reason alone. By the way, tomorrow is Friday the 13th. Perhaps related, Japan will release tomorrow its revision to Q1 GDP data. Some traders say the number is likely to be revised down. Recall the surprisingly strong initial +1.9% reading, an extraordinarily strong number that was greeted by many with disbelief. The resulting yen strength that ensued anyway was countered by BOJ intervention in early June. And for those of you who haven't heard ... it has been reported that Warren Beatty is thinking of running for President in 2000 election. 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.