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To: Les H who wrote (8682)	9/22/2003 11:05:53 AM
From: Les H	Respond to of 29595

Treasuries Drop Amid Speculation Japan May Scale Back U.S. Note Purchases Sept. 22 (Bloomberg) -- U.S. Treasuries fell in New York after the Group of Seven finance ministers suggested Japan may reduce its reliance on selling yen to buy dollar assets such as government debt in order to fuel growth by cheapening exports. Benchmark 10-year government notes had their biggest drop in almost three weeks amid concern Japan would reduce purchases of U.S. notes, sending interest rates higher. Finance ministers of the seven most industrialized counties, including Japan, said Saturday in Dubai that exchange rates should reflect a country's economic strength. ``The risk now is that Treasuries may suffer from a lack of Asian central bank sponsorship,'' said Christopher Sullivan, who oversees $2 billion in bonds as chief investment officer at the United Nations Federal Credit Union in New York. The 10-year note yield, which moves opposite its price, may rise to mort than 4.50 percent ``pretty quickly,'' Sullivan said. The benchmark 4 1/4 percent note maturing in August 2013 fell for the first day in four, shedding almost 3/4, or $7.50 per $1,000 face amount, to 100 at 9:20 a.m. in New York, according to Mizuho Securities. Its yield rose 10 basis points to 4.26 percent. The last time the yield rose this much was Sept. 2, when it gained 14 basis points. A basis point is 0.01 percentage point. Foreign buying of U.S. debt Treasuries in recent weeks has helped spur a rally that drove 10-year government bond yields to 4.12 percent on Friday from a one-year high of 4.66 percent on Aug. 14. Investors had a return, including reinvested interest, of 3.1 percent during that time. Holdings of Treasuries among central banks outside the U.S. totaled a record daily average of $774.8 billion for the week ended Wednesday, according to Federal Reserve statistics. Japan was the largest holder of U.S. notes and bonds in July, owning $443.8 billion of the $1.39 trillion in U.S. government securities held abroad, the Treasury Department said last week. Currency Trading The Bank of Japan sold a record 9.03 trillion yen ($80.5 billion) from January to July. The yen rose to the highest since December 2000 against the U.S. dollar -- reaching 111.39 yen per dollar. It has gained 5.8 percent against the dollar this year. Some investors said the statement from the Group of Seven finance ministers wouldn't have a lasting effect on the Bank of Japan or the U.S. Treasury market. ``We shouldn't rule out that the Japanese will attempt to push their currency back to 120'' yen per dollar ``once this all blows over,'' said Selig Sechzer, director of asset allocation in New York at Alliance Capital Management, which invests $413 billion. ``I don't think this is going to be a long-term determinant of where Treasury yields go. The key to focus on will continue to be the U.S. recovery, U.S. monetary policy and U.S. inflation.'' Federal Reserve Ten-year notes gained for the past five weeks through Friday, the longest rally since the six weeks to Sept. 27, 2002, as investors anticipated the Federal Reserve won't raise interest rates from a 45-year low of 1 percent until inflation accelerates. The 2 percent August 2005 note declined 1/16 to 100 9/16, pushing up the yield 4 basis points to 1.70 percent, before the Treasury's announcement today in Washington of the amount of new 2005 notes it will sell Wednesday. The government will probably auction $25 billion of two-year notes, according to economists at Citigroup Inc. and Wrightson ICAP LLC, the economic-research unit of ICAP Plc, the same as the most recent auction in August. Overall, Wrightson said it estimates the Treasury will borrow about $78 billion for the quarter, below the Treasury's late-July estimate of $104 billion. Ten-year Treasuries yielded 2.55 percentage points more than two-year notes. The yield gap on Friday shrank to 2.49 percentage points, the narrowest in more than two weeks, from 2.68 percentage points on Monday. Survey A Ried, Thunberg & Co. index measuring sentiment toward the 10-year note through to December fell to 50 on Friday from 52 a week earlier. A reading below 50 in the Westport, Connecticut- based research firm's survey suggests prices will fall by the end of the next quarter. Investors in the survey said they are wary of pushing yields lower without further proof a slowdown in inflation is tempering economic growth. Bond yields move inversely to prices. Fed Governor Ben S. Bernanke will speak on the economic outlook in Washington today. Bernanke said this month that policy makers have room to cut rates if the economy doesn't add jobs. Fed Vice Chairman Roger Ferguson said yesterday that financial markets may be ``overly optimistic'' about the strength and durability of the global economic recovery. After their meeting last week, central bankers said they would leave their target for overnight loans between banks on hold for a ``considerable period'' to ensure a sustainable economic recovery. They said that accelerating growth has yet to lead to job creation, and a slowing rate of inflation is still a threat to the economy. Record U.S. trade and budget deficits may threaten global growth in the years ahead as the U.S., Japan and Europe recover from a two-year slowdown, the International Monetary Fund said. ``There are still many risks'' including ``the disturbing pattern of global current account imbalances,'' Ken Rogoff, the head of the IMF's research department, told a news conference. Nevertheless, ``we are reasonably optimistic about seeing a return to normal growth in the global economy.''