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Pastimes : The Justa and Lars Honors Bob Brinker Investment Club Thread -- Ignore unavailable to you. Want to Upgrade?

To: Justa Werkenstiff who wrote (281)	7/14/2000 3:27:52 PM
From: Wally Mastroly	Read Replies (1) \| Respond to of 10065

Treasuries Slump; Sales Growth Outweighs Producer Price Drop By Marianne Sullivan New York, July 14 (Bloomberg) -- U.S. Treasuries fell after a report showing a bigger-than-expected gain in retail sales in June fanned concern the economy isn't slowing enough to prompt the Federal Reserve from raising interest rates again. ``The market was banking on a clear slowdown,'' said Raye Kanzenbach, who's been buying corporate and agency debt for the $7 billion he helps invest at Insight Investment Management in Minneapolis. ``Now the question is how much of a slowdown this really is.'' The most actively traded 30-year bond slumped 22/32, or $6.88 per $1,000 face amount, to a price of 105 13/32, leaving gains for the week at just 2/32. Its yield rose 5 basis points from a three- month low to 5.87 percent. The most-active 10-year note fell 17/32 to 103 1/32, driving its yield up 8 basis points to 6.08 percent. The most-active two-year note -- among securities most sensitive to Fed policy -- fell 5/32, or $1.56 per $1,000 face amount, to 99. Its yield climbed 9 basis points to 6.37 percent. U.S. debt initially got a lift after the government said producer prices excluding food and energy unexpectedly fell 0.1 percent, a sign inflation isn't accelerating outside of recent gains in oil. Treasuries reversed course as traders turned their focus to the sales figures, which indicated the U.S. economy is going strong in its tenth year of expansion. The government said retail sales rose a greater-than-expected 0.5 percent last month, while May sales were revised to show a 0.3 percent gain instead of the previously reported drop of 0.3 percent. The report countered other recent reports pointing to slowing growth and fueled concern the Fed's six rate rises the past year to 6.5 percent aren't enough to keep growth from spurring inflation. That means at least one more increase may be in store, which could limit gains in Treasuries, analysts said. Signs of Strength In other signs of strength, a Fed report showed industrial output rose in June, while a University of Michigan report showed consumers are more upbeat about their financial prospects so far in July than they were last month. While the government's producer price index fell in June excluding food and energy, it rose 0.6 percent overall. ``There's still potential for the economy to keep moving along fast enough to produce inflation pressures,'' said Thomas Donne, who planned to buy corporate debt for the $1.9 billion he manages at Banc One Investment Advisors in Columbus, Ohio. Federal funds futures, the futures market's closest match to the central bank's target bank lending rate, suggest investors see another rate increase in the months ahead, if not at policy- makers' next meeting Aug. 22. The implied yield on the September fed funds futures contract, at 6.62 percent, shows investors are split about the prospects for a rate increase next month. The December contract's implied yield rose 2.5 basis points today to 6.73 percent, showing investors place a greater probability that the Fed will raise rates a quarter point by that time. Half Point? For Insight's Kanzenbach, an August rate increase is still a question mark, although he is betting the Fed will raise rates a half point before the end of the year. Next week's report on consumer prices in June and a report on second-quarter employment costs the following week should be the most influential to Fed officials before next month's meeting, investors said. In an environment where inflation is tame -- even if the Fed hasn't finished raising interest rates -- non-government fixed income securities ``should outperform,'' said Charles Van Vleet, who helps invest the $12 billion in global fixed income at Credit Suisse Asset Management & Warburg Pincus. ``Investors are becoming more comfortable with risk,'' said Van Vleet. ``Now they want yield.'' In making his own recent asset allocation decisions, Van Vleet said he sold Treasuries for higher -yielding corporate debt. He isn't alone. Resurgent demand for corporate debt has helped narrow differences in yield, or spreads, between corporates and Treasuries by some 16 basis points to 1.86 percentage points on average from a more than 10-year high of 2.02 percentage points last month, according to a Merrill Lynch & Co. index. Borrowing Barrage As spreads narrowed, year-to-date returns on corporate bonds have grown to 2.92 percent including price gains and interest from just 1.26 percent a month ago, according to Merrill. Narrowing spreads have also reduced borrowing costs, prompting a slew of corporations and other borrowers -- from top-rated General Electric Capital Corp. to junk-rated TeleCorp PCS Inc. -- to rush in and sell more than $22 billion of new debt this week. Today's biggest borrower was Spain, which raised $1.5 billion with a sale of five-year notes. Among companies readying sales is AT&T Corp., the No. 1 U.S. long-distance telephone company, which plans to raise at least $3 billion by selling a combination of fixed- and floating-rate debt with one-year maturities. At noon New York time, about $15.4 billion in Treasuries traded through major brokers, about 39 percent less than the average Friday in the third quarter of 1999, according to the bond information firm GovPX Inc