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Pastimes : The Hot Button Questions:- Money, Banks, & the Economy -- Ignore unavailable to you. Want to Upgrade?

To: maceng2 who wrote (271)	7/17/2003 5:07:32 AM
From: maceng2	Read Replies (1) \| Respond to of 1417

US bond turmoil forces Greenspan retreat By Gary Duncan and Richard Miles timesonline.co.uk ALAN GREENSPAN was forced into a retreat yesterday as he attempted to calm turmoil in bond markets sparked by his bullish view of US prospects in testimony to America’s Congress on Tuesday. The Fed Chairman back-pedalled after some of his comments combined with remarks by the US Treasury Secretary, John Snow, in an exclusive Times interview, to trigger a sell-off of government bonds on both sides of the Atlantic. A strikingly upbeat assessment of the US outlook from America’s top two economic policymakers fuelled market fears that the bull market in bonds is over, sending US Treasury bonds and British gilt-edged stock plunging. The benchmark ten-year US Treasury note suffered its biggest single-day sell-off since the near-collapse of Long Term Capital Management, the New York-based hedge fund, in 1998. The yield on the benchmark note rose to a four-month high above 4 per cent in early trading yesterday, while the yield on the benchmark 30-year Treasury bond broke through 5 per cent. The turmoil began after Mr Greenspan told Congress that the US economy could grow by up to 4.75 per cent next year. Dismissing the threat of deflation, he also played down the need for the US central bank to intervene in the US bond markets. He described as “most unlikely” the prospect that the Fed would buy longer-dated bonds in order to push down long-term interest rates. His comments surprised bond markets, sending them into a spin. Yesterday Mr Greenspan had to deliver soothing comments on the second day of his congressional testimony. He insisted that he had not ruled out Fed contingency measures to buy Treasury bonds if needed as a last-ditch measure to stave off deflation. “I am not aware that I took anything off the table,” he told the Senate Banking Committee. Mr Greenspan’s qualification of his comments helped US Treasuries to claw back some losses but left dealers confused. The comments also failed to dispel the view that the long-running bond market rally is running into the sand. “I think this thing has changed. People are using rallies to get out,” Bill Hornberger, a strategist at AG Edwards, in Chicago, said. In afternoon New York trading the 30-year Treasury bond yield fell back to 4.94 per cent. But prices for ten-year notes were down more than 6 cents on the day, with a yield of 3.99 per cent. In London, the gilt market also had a battering. Yields on ten-year gilts leapt to a two-and-a-half-month high of 4.3367 per cent before easing.The dollar also reflected the bullish assessment of Mr Snow and Mr Greenspan, hitting four-month highs against the euro and three-month highs against the pound before falling back on profit-taking.The bond sell-off came as the manager of the largest fixed income fund in the world declared that the three-and-a-half-year rally in the market was over. Bill Gross, managing director of Pimco, the US investment group with more than $304 billion (£190 billion) under management, told clients the rise in bonds peaked last month.