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Strategies & Market Trends : Galapagos Islands -- Ignore unavailable to you. Want to Upgrade?

To: 2MAR$ who wrote (30885)	3/5/2003 11:16:24 PM
From: 2MAR$	Respond to of 57110

Treasuries keep rally rolling, flirt with Fed cut Wednesday March 5, 5:36 pm ET By Wayne Cole (Adds late prices) NEW YORK, March 5 (Reuters) - Treasuries soaked up sporadic profit-taking on Wednesday to keep alive an eight-session winning streak, helped in part by a downbeat report on the U.S. economy from the Federal Reserve. Such is the growing unease on the economy that the futures market has shifted to price in better than 80 percent odds of another cut in official interest rates by mid-year. "The market's thinking the Fed's in play," said Joseph LaVorgna, senior U.S. economist at Deutsche Bank Securities. "It's pricing in a real chance of a rate cut by end-June." The Federal Reserve's beige book report for February found the economy remained subdued, with weak consumer spending and very soft business spending, while there was little change in investment or hiring plans. Nearly half of the Fed's districts reported manufacturers were reducing their payrolls. St. Louis Fed President William Poole lamented the lack of jobs growth and promised the Fed would do its best for the economy by focusing on price stability. That echoed comments on Tuesday from San Francisco Fed President Robert Parry, who noted that even if economic growth accelerated to 3.0 percent, as the central bank expected, it would not be fast enough to make inroads into unemployment. Parry also emphasized that the Fed still had room to cut interest rates if needed, a comment that stirred much speculation in the Eurodollar pits, where the June future (EDM3) climbed to contract highs of 98.800. Fed funds futures(FFM3), which reflect market betting on official interest rates, also hit contract highs at 98.885, reflecting over an 80 percent chance of a quarter-point cut in the 1.25 percent fed funds rate by mid-year. BLIX SCARE Traders said news that United Nations chief weapons inspector Hans Blix would hold a news conference sparked selling of Treasuries -- and boosted stocks -- on the assumption he might say something detrimental to the U.S. case for war. Blix noted that Iraq had been more "proactive" in disarming recently, but otherwise said nothing new. The White House stuck to its hard line, with Secretary of State Colin Powell claiming Iraq was hiding banned weapons and that Baghdad had no intention to disarm. That helped bonds recoup their losses and the benchmark 10-year (US10YT=RR) firmed 5/32 in price, pushing its yield to 3.63 percent from 3.65 percent at Tuesday's close. In the last eight sessions, the 10-year yield has dived almost 30 basis points and is fast approaching 40-year lows around 3.56 percent hit last October. The two-year note (US2YT=RR) firmed 2/32, taking its yield to a fresh record low of 1.43 percent, while the five-year (US5YT=RR) added 5/32, for a yield of 2.57 percent from 2.61 percent. Thirty-year bond (US30YT=RR) yields were steady at 4.67 percent, resulting in a steeper yield curve. JOBS IN JEOPARDY The Institute for Supply Management's non-manufacturing business activity index dipped to 53.9 in February from 54.4 the month before, though that was a shade above market forecasts of 53.4. At the same time, the employment component of the index dipped below 50, the number seen as dividing growth from contraction and echoed weakness seen in the ISM's manufacturing survey earlier this week. Several leading indicators of employment have now proved weaker than expected for February, stirring much speculation the monthly payrolls report, due Friday, will show a fall in employment and a rise in the jobless rate. "It's surprising to us that so many are still looking for a small rise in payrolls given the recent flow of data. We're looking for a 50,000 fall," said LaVorgna, at Deutsche Bank Securities. The average forecast in a Reuters survey of analysts taken late last week was for payrolls to rise 8,000 in February after January's seasonally inflated 143,000 jump.