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To: Augustus Gloop who wrote (124614)	5/14/1999 9:26:00 AM
From: D.J.Smyth	Respond to of 176387

16:10 DJS Treasurys Rally On Tame Inflation Data; Long-Bond Yields 5.745% 16:10 DJS Treasurys Rally On Tame Inflation Data; Long-Bond Yields 5.745% NEW YORK -(Dow Jones)- U.S. Treasurys prices finished solidly higher Thursday, with the benchmark 30-year bond yield slipping below the critical 5.75% level for the first time in nearly a week, as relatively tame inflation data eased fears of a possible Federal Reserve tightening. The Labor Department's producer price index rose 0.5% in April, but the core measure of inflation at the manufacturing level, which excludes the volatile food and energy components, rose just 0.1%. Both were right in line with market estimates. In a separate bond-friendly report, the Commerce Department said retail sales edged up 0.1% last month. April's gain in retail sales was below market expectations for a 0.4% rise and followed a downwardly revised increase of 0.1% in March. The retailing data also helped to soothe inflation worries. Late in Thursday's session, the yield on the bellwether 30-year Treasury was at 5.745%, down from 5.823% late Wednesday. The bond's price - which moves opposite to the yield - was up a full point at 92 28/32. The long bond had been up 10/32 just before the key economic data were released at 8:30 a.m. EDT. Among other Treasury issues, the new 10-year note was up 24/32 at 100 22/32 to yield 5.40%. The two-year note was up 4/32 at 99 26/32 to yield 5.10%. Three-month bills were unchanged at 4.46 to yield 4.58%. "It's important to note that the volume was low," said Anthony Crescenzi, chief bond market strategist at Miller, Tabak Hirsch & Co. in New York. "This is a solid price advance, but actual money being put in the market is not substantial." Still, the market was ripe with talk that big-time investors, including Warren Buffet, finally jumped in to pick up some bargains. The tame PPI reading is likely to justify the "hands-off" stance of Fed policy makers, who are scheduled to meet next Tuesday. Most analysts expect the Federal Open Market Committee to stand pat on interest rates at the meeting. The PPI report also helped to lower the risks of surprises from the consumer price index for April, due for release at 8:30 a.m. EDT Friday. The median estimate of 16 economists polled by Dow Jones Newswires and CNBC is for a 0.4% rise in the CPI. But the core rate, again a better measure of inflation because it excludes the volatile food and energy components, is expected to have risen just 0.2%. In a third report Thursday morning, Labor said initial weekly jobless claims were unchanged in the week ended May 8. Economists were expecting claims to drop by 1,000. The four-week moving average of claims, which smoothes out volatility in the data, decreased by 4,000 to 304,250 in the latest week. Though bond yields remain near their highest levels in more than nine months, rates appear poised to move lower over the short-term as the inflation-sensitive market emerges from a potentially disastrous week relatively unscathed, analysts said. "All the data were very constructive for the bond market," said Marilyn Schaja, money market economist at Donaldson Lufkin & Jenrette Securities in New York. April's 5.1% surge in energy prices isn't likely to be repeated going forward, and the decline in retail sales is "definitely suggesting some slowdown into the second quarter," Schaja said. The Treasurys market has run a gauntlet this week, highlighted by Wednesday's announcement that Treasury Secretary Robert Rubin will step down in July. Along the way, Treasurys also have weathered two very poor note auctions and continued competition from corporate and agency debt. With all of that now behind them, some traders are saying Treasurys rates may have peaked after skyrocketing in recent weeks as sentiment turned sharply bearish on signs the U.S. economy is resistant to cooling. "I think the Street in general has had more of a negative sentiment, and I think some of that is being peeled off a little bit," said Donald Galante, head of trading at Fuji Securities in New York. Thursday's rally was "a little bit of a relief trade," he said. Wednesday may have been the true turning point, when the market reversed early losses on word of Rubin's resignation to move a bit higher on the day. That caught traders' attention and left bears a little more nervous. "I think a lot of the move (Thursday) was some short-covering," said David Myers, market strategist at Deutsche Bank Securities. He expects rates to move lower over the short-term but doesn't believe the market is in a bull rally. Copyright (c) 1999 Dow Jones & Company, Inc. All Rights Reserved. 05/13 4:10p CDT