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To: Elwood P. Dowd who wrote (90739)	4/18/2001 11:25:35 AM
From: tonyt	Respond to of 97611

FED CUTS RATES 50bps. MARKETS SOAR! Treasurys recover as Fed cuts rates By Rachel Koning, CBS.MarketWatch.com Last Update: 11:13 AM ET Apr 18, 2001 NEW YORK (CBS.MW) - Short-dated Treasury securities recouped early losses Wednesday as the Federal Reserve delivered a surprise intermeeting interest rate cut. The Fed said an erosion in profits, soft capital investment and flattening household demand prompted its move. The Fed's target now stands at 4.5 percent. The lesser-used discount rate was also cut to 4 percent. In recent action, a Fed-sensitive 2-year note was up 4/32 at 99 25/32, dropping its yield 7 basis points from the previous session to 4.36 percent. The long end of the market stayed lower, however, with investors believing the prospects for late-year recovery remain strong. A 5-year note rose 2/32 at 103 24/32, dropping its yield 2 basis points to 4.82 percent. A bellwether 10-year Treasury note fell 17/32 at 97 25/32, lifting its yield ($TNX: news, msgs, alerts) 7 basis points to 5.29 percent. Yield moves inversely to price because the less paid for a fixed investment the greater its return. A 30-year bond lost 10/32 at 95 17/32, lifting its yield ($TYX: news, msgs, alerts) 2 basis points to 5.69 percent. Earlier, stock strength and growing prospects for a late-year economic recovery pressured Treasurys on Wednesday. The government sector has declined for six in the last seven sessions, in part as investors turn to the riskier, but potentially better rewarding, equity arena. Stock market strength both lifts the odds for less-aggressive Federal Reserve interest-rate cuts and dulls the appeal of investing in the safer government sector. The central bank is still expected, however, to trim a half point from its now 5-percent lending target, probably at its May 15 policy meeting. But bond investors are beginning to predict the Fed's easing campaign won't go on much longer and the economy will bounce back later in the year. When and if that happens, fixed-income investors will again start to watch for the negative effects of inflation. For instance, the yield on a Fed-sensitive 2-year note have bounced back over 40 basis points since reaching a 2 1/2-year low just a few weeks ago. Even a larger-than-expected debt buyback announcement from the Treasury - up to $3 billion in bonds due between February 2015 to August 2019 - couldn't lift the long end of the yield curve. Over in the stock arena, major averages got a boost from favorable earnings news. Intel (INTC: news, msgs, alerts) posted late Tuesday a profit from operations of 16 cents in the first quarter, beating the Wall Street consensus estimate by a penny. See full story. Read more on stock market action in Market Snapshot.In economic news, a measure of leading economic indicators was down 0.3 percent. But an indication of future activity rose for the third month in a row. In a separate report, the U.S. trade gap shrunk to its narrowest point in 14 months in February, government data showed Wednesday. Exports expanded at the same time a slower U.S. economy crimped demand for overseas products, including crude oil. The deficit in goods and services trade stood at $27 billion that month, the Commerce Department reported. The deficit fell 18.8 percent from the $33.2 billion trade shortfall put on the books for January. January's gap was the second largest on record since this data series was launched in 1992. Economists surveyed by CBS.MarketWatch.com looked for the deficit to shrink to $32.7 billion in February. At 1:15 p.m. Eastern, Philadelphia Fed President Anthony Santomero is scheduled to speak on financial modernization to a banking symposium in Trenton, N.J. Santomero does not vote on interest-rate policy this year. Rachel Koning is a reporter for CBS.MarketWatch.com