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

To: KM who wrote (24807)	9/3/1999 1:37:00 PM
From: Les H	Read Replies (2) \| Respond to of 99985

TALK FROM THE TRENCHES: PROS TAKE US TSYS HIGHER ON JOBS DATA By Isobel Kennedy economeister.com NEW YORK (MkrNews) - Well, the market got the rally it would have expected from the across-the-board good payroll report. At the top of Friday's upswing 2s and bonds shed about 12 bps in yield while yields in the belly fell 14 to 15 bps. But still, participation was poor, sources say. Lots of the heavy hitting traders are on vacation and retail is still largely sidelined. Other dealers are sitting on their hands unwilling to chase the market. Friday's buying was viewed as mostly professional short covering and not necessarily a change in the longer-term outlook. While today's report reduces the chance of a Fed move at October 5 FOMC meeting, it's "still an open question and we still have inflation data to look at," one salesman said. Producer prices will be released next Friday and that is the only real number for the week. Higher cigarette and gas prices may raise the upside risks on this number, analysts say. And there will be lots of Fedspeak next week, too. Three Fed Governors, a U.S. Treasury Secretary and Mr. Greenspan himself have speeches scheduled. As bond traders nervously watch the DJIA rally almost 200 points Friday they wonder if Mr. G will have to come out and give stock traders another warning. Meantime, fed Fund futures are pricing out some of the probability of a Fed tightening at on Oct 5, traders say. This morning, the Oct contract was reflecting a 35% chance of another 25 bps hike at the next meeting, sharply lower than Thursday's estimates. However, backmonth Dec fed funds are pricing in a 50/50 probability of a 25 bps hike by year-end. And, remember sources say, Y2K is not an issue for them. Corporate supply remains a big negative for Treasuries and the floodgates are set to open next week. Keep in mind, too, that with today's rally more issuers could decide to enter the fray to take advantage of lower borrowing costs. Here's a few updates on Japan: Ongoing chatter about possible BOJ intervention during Labor Day holiday -- what happens if they don't come in? LDP Ohara reportedly said Japan should be willing to intervene without the help of the U.S. and it should be unsterilized. He also said it is safe to assume the new budget will be between Y5 to Y10 trillion. Finance Minister Miyazawa says Japan can intervene, if necessary, without consulting the U.S. The BOJ meets next Thursday, the same day their GDP comes out. Back in the U.S. Treasury bunkers, traders watch as prices remain well bid but they are secretly consulting their Hampton Jitney schedules hoping they can sneak out even sooner than the 2PM EDT early close. Have a great long weekend! Kim Rellahan, Alyce Andres, Dennis Pettit contributed 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.