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To: Jeffrey L. Henken who wrote (251)	9/23/1998 5:11:00 PM
From: Ray Tarke	Read Replies (1) \| Respond to of 939

Looks like next week will see a cut in rates. US Treasuries end higher as Greenspan signals ease ! By Ellen Freilich NEW YORK, Sept 23 (Reuters) - U.S. Treasuries ended mostly higher on Wednesday as investors concluded that the Federal Reserve would cut interest rates as soon as next week. In afternoon testimony before the Senate Budget Committee, Federal Reserve Chairman Alan Greenspan said global financial turmoil was a more than sufficient tempering influence on U.S. inflation and observed that the world's economic situation had considerably deteriorated since the central bank policy making body, the Federal Open Market Committee (FOMC), met in mid-August. The Fed Chairman said the U.S. economy did not show significant weakness yet, but he said the risk of a U.S. economic slowdown had increased since August. In August, Fed policymakers are widely believed to have assessed the risks to the U.S. economy as evenly balanced between the threat of inflation and the chance of an economic slowdown. Thus, policy makers left interest rates unchanged. But Greenspan's observations on Wednesday that inflation would be held in check and that the risk of a U.S. economic slowdown had risen led markets to conclude that an official interest-rate cut was in the offing. David Jones, vice chairman and chief economist at Aubrey G. Lanston & Co., said the Greenspan testimony was a signal that the Fed would cut interest rates at the Sept. 29 FOMC meeting. ''The key phrases are the increased risk of a U.S. slowdown, the fact that deteriorating global economies are keeping U.S. inflation in check, and what he said about lower equity prices dampening household spending,'' said Jones. ''(He talked) about the reverse wealth effect which ... he's looking at almost more than anything else as a justification for easing.'' That reverse wealth effect occurs when financial asset values fall, causing consumers to feel poorer and spend less. ''All of these factors point in the direction of the Fed starting a series of easing steps at the September 29 FOMC meeting,'' said Jones. ''Over the next 12 months, they could ease (a total of) 100 basis points,'' he said. ''It's the second Wednesday in a row right before the FOMC meeting that Greenspan has warned us that deflation from the Far East is heading our way and that it will slow the economy more than would have been expected,'' said Chris Rupkey, vice president and financial economist at Bank of Tokyo/Mitsubishi. ''Therefore, he's going to ease 25 basis points.'' Some analysts said the Fed's willingness to ease could be partly related to big losses by some large market players. Senior officials at several banks who declined to be identified told Reuters on Wednesday that major investment and commercial banks were grappling with severe losses at Long Term Capital Management, a major hedge fund. The banking officials estimated that the Greenwich, Conn.-based firm had lost more than 100 percent of its capital base, which reportedly stood at $4.0 billion when it announced big losses earlier this month. Concern about the potential fallout from those losses, curve-steepening trades related to prospects for lower short-term interest rates, and asset reallocations out of bonds and into a rallying stock market all helped keep the 30-year Treasury bond in the minus column on Wednesday, traders said. The blue-chip Dow Jones Industrial Average soared 257.21 points to close at 8154.41 on Wednesday, banking on lower interest rates to enhance corporate profits. Meanwhile, the benchmark 30-year Treasury bond was down 6/32 to 104-31/32, yielding 5.17 percent, in late trade. In contrast, two-year notes were up 6/32 to 101-1/32, yielding 4.56 percent. ''To hold on to two-year notes at these levels, you have to believe that the world financial crisis is going to continue,'' said Rupkey. The Treasury sold $15.0 billion in two-year notes at a high yield of 4.615 percent on Wednesday. Five-year notes were up 13/32 to 103-11/32, yielding 4.48 percent. Ten-year notes advanced 11/32 to 107-10/32 to yield 4.57 percent. At the short end of the maturity range, three-month bill rates were down 12 basis points to 4.70 percent, six-month bill rates were off 14 basis points to 4.54 percent and year bill rates were down nine basis points to 4.40 percent. biz.yahoo.com Regards, R.T