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

To: Les H who wrote (31590)	10/27/1999 12:51:00 PM
From: Les H	Respond to of 99985

TALK FROM TRENCHES: US TSYS FIRM, RETAIL SEEN; WILL IT LAST? By Isobel Kennedy economeister.com NEW YORK (MktNews) - U.S. Treasuries have given back some of Wednesday's gains but are still about two bps better across the curve. Prices improved on the coat tails of a European bond market rally and traded higher on a weaker-than-expected U.S. durable goods number. But whether the uptick is the beginning of the turn many had hoped for or whether it is just a technical blip off the bottom is a big question, sources say. But in either case, it was refreshing for beleaguered players to report some buying by real money accounts this morning. Customer buy interest was also reported yesterday. For some time now, analysts have been recommending that any "bulls out there" switch out of current issues and buy the more-discounted off-the-run paper which is likely to outperform if the market turns around. Over the last few days, sources say some real money accounts, both here and abroad, have been buying older paper across the curve. As of Tuesday, 7Y paper had improved about 1.25 bps vs. current 10s. It was confirmed yesterday that a central bank bought the 2006 sector. As of yesterday, off-the-run 2s had outperformed by 1 bp and off-the-run 5s and bonds were better by .5 bps vs. their respective benchmarks, sources say. Insurance companies were said to have bought off-run 5s and 10s yesterday. And a central bank was buying off-run 5s Wednesday morning. In the longer end, long-dated principal strips in the 2025 area are yielding just shy of 7.00% right now. Interestingly, a Japanese lifer was extending from 2003 out to 2021 paper this morning. The most interesting trade of late, however, was talk that a major, major European central bank was buying the current and off-the-run 10Y and 30Y sectors this morning. This same account was doing the same thing yesterday while selling the short-end at the same time. This account's name has not been bandied about for a good long time. Of course, it is always a mystery why -- if the trade is true -- anyone would give up the name of such a big account in the first place, sources say. But one salesman who is very familiar with the habits of this customer, says he did not see the trade but he believes the rumor has merit. There is some speculation that there is a connection between this recent central bank buying and the belief that a string of global rate hikes are in the offing. Traders say the strong European-11 money supply data that came out last night almost certainly assures that the European Central Bank will raise rates at next week's meeting. That, of course, could pave the way for the U.K., other European central banks and the U.S. Fed to follow suit. Since the ECB seems to favor larger rate changes that are less frequent in nature, an ECB rate hike has been priced into that market and will be taken in stride, sources say. European bonds outperformed the U.S. last night as traders say if you believe a rate hike is imminent, you must buy the market now and not wait until the actual hike occurs. That is probably also true for the U.S. bond markets, sources say, but the situation is a little murkier. The U.S. may raise rates at the November 16 meeting, but there is less certainty that it would be the last one. Mr. Greenspan is known to prefer smaller, more frequent rate changes. That, of course, "makes it more painful to trade the U.S. markets than the European markets", one source said. Even so, no market goes straight up or down and U.S. Treasuries were probably due for a technical uptick and that is why some buying by U.S. domestic and foreign accounts finally materialized. In addition to the earlier mentioned buying, sources say they have also seen Asian lifers, European central banks and domestic money managers buying in the 10Y and 30Y off-the-run sectors today. Despite today's better market and improved tone, the battlefield is littered with minefields. The biggest, of course, are tomorrow's gross domestic product and employment cost index releases. And then, Uncle Al speaks tomorrow evening. Then there is supply in the form of today's 2y auction and next week's announcement of the November refunding of 5s and 10s. The Bank of Japan met Wednesday and said it will begin outright purchases of short-term government bills after mid-November. The volume of bills the BOJ buys and sells in the operations and the timing of those operations will be determined by the BOJ according to the needs of the market. At the moment the BOJ buys Y400 billion of government bonds a month outright and provides liquidity to the market through repo operations. Interestingly, the BOJ said it will allow the use of U.S. Treasury bonds as collateral for Y2K-related lending! That also gave the U.S. Treasury a bid, sources say. 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.