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

To: pater tenebrarum who wrote (45872)	4/12/2000 11:18:00 PM
From: Les H	Read Replies (1) \| Respond to of 99985

Japanese Bond Futures Fall as BOJ's Hayami Signals Higher Rates By Martin Foster Tokyo, April 13 (Bloomberg) -- Japanese bond futures and short-term bonds fell, with two-year yields surging to their highest levels in 14 months, after the Bank of Japan governor hinted that interest rates may rise this year. Futures for June delivery fell after BOJ Governor Masaru Hayami signaled yesterday that the bank may raise interest rates for the first time in a decade, making it less profitable to buy bonds with borrowed money. That's especially true of bonds with maturities not much longer than the overnight rates that tend to react more sensitively to changes in interest rate forecasts. ``Rising two-year yields have already factored in a rise to 0.25 percent in the interbank overnight lending rate,' said Yusaku Nozoe, an assistant manager at Societe Generale Securities (North Pacific) Ltd. Bond futures contracts for June delivery fell 0.50 to 131.02, after touching lows of 130.86 in early trade and 130.83 in London trading. The No. 221, 10-year benchmark bond rose 0.043, or 21.5 yen per 50,000 yen bond, to 100.729. The yield slipped half a basis point to 1.815 percent, after earlier rising to 1.835 percent. Yields on the two-year bond rose to 0.540 percent at one point this morning, compared to a 0.420 percent close yesterday, and was the highest since Feb. 8 last year. Yields on the five- year bond rose to 1.24 percent, the highest level since March 28. Still, some traders say the market may be too pessimistic following the Hayami comments. Not a Higher Rate Cycle Traders focused on Hayami's comments that ``ending zero rates doesn't mean tightening policy' and that their levels will only rise as the economy recovers. ``Hayami's comments seem to suggest that the end of zero-rate policy does not necessarily mean the beginning of a tightening cycle,' said Michael Wilkins, manager of cross-market dealing at Credit Lyonnais Securities. ``There's a huge difference between these two things.' The central bank has said before that the zero-rate policy is abnormal, suggesting it has been looking to end it for some time. Most analysts say they will allow the overnight interbank rate to rise to around 0.25 percent and some to only 0.15 percent. Declines in bonds were also limited as some investors said bond yields were approaching attractive levels. The 10-year yield is now at its the highest level since the 1.87 percent of March 30, and near the 1.90 percent level of March 28. Masuhisa Kobayashi, a fixed-income strategist at Merrill Lynch Japan Inc., sees 1.9 percent yields as a good level to pick up bargains on the 10-year bond, and has not changed his call for yields on the benchmark bond to fall to 1.5 percent in the first quarter of the fiscal year from April 1 to June 30. Consumption Lags While Hayami's comments were taken by some investors as an indication that rates will rise this year, the economy may be too fragile to sustain a rate increase, said analysts. ``I feel the BOJ's pain, and realize that in theory they should raise rates, to help push along the process of structural reform' said Merrill's Kobayashi. ``But they won't be able to because of poor consumption.' Kobayashi points to the weak outlook for consumption, as trade unions were forced to accept low increases in base pay from April this year. ``Did you see the pitiful rises in wages this year? They are the worst since the war,' he said. Wage increases won by labor unions in major industries during this year's annual spring wage negotiations are expected to mark a record low for a third-straight year, falling below the 2.21 percent in fiscal 1999, as Japanese companies are offering workers some of the skimpiest pay raises ever, saying they can't afford to pay much more while profits remain low. That will make workers more reluctant to spend. Consumption makes up 60 percent of gross domestic product, outweighing the 15 percent share of capital expenditure, which has shown signs of improvement. A change in the zero interest-rate policy this summer would raise the costs banks have to pay when borrowing at the overnight interbank call rate. That theoretically makes it less profitable to buy bonds with borrowed funds. Still, the key interbank overnight rate has stayed largely unchanged around 0.02 percent, and while bond yields soared earlier on the prospect of higher rates. That has actually worked to broaden the margins available by borrowing at the overnight bank rate and investing in 10-year bonds. After the 10-year yield rose to 1.835 percent, it stood 181.5 basis points higher than the overnight lending rate in late trade yesterday, higher than the 173 basis points available on Tuesday.

To: pater tenebrarum who wrote (45872)	4/13/2000 2:47:00 AM
From: Haim R. Branisteanu	Read Replies (1) \| Respond to of 99985

Heinz, have you bought some comfortable seats at BA? Cashed out after 3 points. Such a boring stock makes airplanes no Internet appliaces <GGGG> Haim