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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (3448)	7/29/2002 5:54:35 PM
From: stockman_scott	Read Replies (1) \| Respond to of 89467

Treasuries sink as soaring stocks lure investors By Ellen Freilich Monday July 29, 5:40 pm Eastern Time (Updates prices) NEW YORK -(Reuters) - U.S. Treasuries tumbled on Monday, as the stock market's second spectacular rally in less than a week raised the possibility that the near-freefall in equities was over and that investors would begin to prefer stocks over safe-haven, low-yielding government debt. Stocks rallied as investors, emboldened by a rebound last week, went bargain-hunting, sending major stock market indices up 5 percent or more. Bonds, which had risen as investors fled the mid-July stocks debacle for safer government debt, retreated as investors rediscovered stocks. "In the near term, when stocks are so clearly in the driver's seat, the correlation is going to be negative for bonds," said Goldman, Sachs & Co. senior economist Jan Hatzius. At 5 p.m. EDT (2300 GMT), the benchmark 10-year Treasury note (US10YT=RR) was down 1-11/32 to 102-12/32 -- yielding 4.56 percent, up from 4.39 percent on Friday. Two-year note yields (US2YT=RR) -- yields move in the opposite direction of prices -- surged to 2.39 percent from 2.23 percent at Friday's close, their biggest single-day rise since early December. Two-year yields had fallen a staggering 100 basis points in just three months. The Dow Jones Industrial Index (CBOT:^DJI - News) climbed 447.49 points, or 5.41 percent, to 8711.88. Last Wednesday, the blue-chip index flew up nearly 500 points to post its second biggest one-day gain ever. The broader Standard & Poor's 500 Index (CBOE:^SPX - News) jumped 46.12 points, or 5.41 percent, to 898.96. The technology-laden Nasdaq Composite Index (NasdaqSC:^IXIC - News), which last week endured its fourth losing week in a row, climbed 73.13 points, or 5.79 percent, to 1335.25. "This is the beginning of the Treasury market's reassessment of the whole situation," said Anthony Karydakis, senior financial economist at Banc One Capital Markets. "And in view of the growing realization that stocks may have hit bottom, the Treasury market backed up." Karydakis said when stocks have a down day, Treasuries will pick up some gains. But he said the day-to-day fluctuations would not matter if investors concluded that stocks have fallen as far as they will go. The bond market soon will also have to absorb new supply. The Treasury Department is expected to announce it will sell $22 billion of new five-year paper and $15 billion of benchmark 10-year notes the following week, according to Wrightson Associates. Treasury may also announce it will go to quarterly 10-year note sales to meet its rising borrowing needs, ditching its practice of regularly reopening these issues. The Treasury said on Monday it would have to borrow $76 billion in the period between July and September and another $71 billion between October and December. No economic data came out on Monday, but reports on national manufacturing and July payrolls are due at the end of the week and they could all challenge Treasuries at their still-lofty levels if they showed strength. "The front end (of the maturity curve) has been buoyed of late by a flight to quality, a flight to liquidity, and some of that has stemmed from the erosion in equity prices," said Bill Sullivan, senior economist at Morgan Stanley. "If we turn that flow of funds around, you could see the two-year note yield go up 20, 30, 40 basis points in a week, easily," Sullivan said. Five-year notes (US5YT=RR), which also have benefited from a flight-to-quality trade, fell 26/32 to 103-15/32, yielding 3.58 percent versus 3.40 on Friday. At the CBOT, 10-year note futures (TYU2) were down 1-7.5/32 at 109-26/32. The 30-year cash bond (US30YT=RR) shed 1-18/32 to 99-10/32 for a yield of 5.42 percent, up from 5.31 percent at Friday's close. September bond futures (USU2) were off 1-13/32 at 104-16/32. At the Chicago Mercantile Exchange, December Eurodollars (EDZ2) settled at 98.045.