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Easy come, easy go for bond
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October 9, 1998: 9:36 a.m. ET
Long-term Treasurys sink, short end gains on dollar slump, hedge fund moves
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NEW YORK (CNNfn) - The U.S. Treasury bond sank Friday as investors again flocked to the safety of its shorter-term cousins and Wall Street stocks appeared headed for a modest bounce.
At around 9 a.m. ET Friday, the 30-year benchmark Treasury was off 2-6/32 in price to 105-14/32 with the yield, which moves in the opposite direction, climbing to 5.13 percent.
The long bond's yield curve dug a trough in the past two weeks, falling to a record low of 4.70 percent before bounding up as pressures on the dollar grew and the unwinding of risky hedge fund positions occurred.
U.S. bond markets will close early Friday ahead of the Columbus Day holiday Monday.
Also weighing on bonds, Wall Street appeared headed for a higher open in the wake of a late-session rally off drastic lows Thursday.
Meanwhile, with stock markets rattled in recent sessions, shorter-term Treasury bills have been the option of choice for investors.
The two-year Treasury bill was up 3/32 to 100-24/32 in price, for a yield of 4.08 percent early Friday.
Elsewhere, the 10-year note -- a key determinant of U.S. mortgage rates -- was sharply lower as a recent sell-off in mortgages and large buybacks of longer-term Treasurys began to ebb.
Treasury market analysts expect that another short-term interest rate cut may be on the way from the Federal Reserve after Fed chief Alan Greenspan highlighted his concern about U.S. growth rates for 1999 in a speech Tuesday.
"The front end of the market obviously offers safety and relative certainty that yields are going lower," said Richard Gilhooly, bond market strategist at Paribas.
Meanwhile, hedge funds have been covering their bets against the Japanese yen, buying up shorter-term Treasurys using yen, in a process known as yen "carry-trades." Japan investors have also been repatriating U.S. investments.
"The long end of the market, on the other hand, is subject to repatriation pressures from Japan in particular," Gillooly said. "And I think hedge fund de-leveraging with the collapse in dollar-yen is also leading to extreme selling pressure at the long end of the market."
The dollar spun seemingly out of control against the Japanese currency, at one point plunging 17 percent to a new year low against the yen before paring its losses Thursday.
But the U.S. dollar continued to drift lower against the yen Friday, after Japanese Finance Minister Kiichi Miyazawa insisted there is no need for central bank intervention to aid the dollar.
The dollar was down 1.89 yen, fetching 117.43 of the Japanese currency in early U.S. trading Friday.
But the greenback was holding its own against key European currencies. After falling to year-and-a-half lows against the German mark on Thursday, the dollar was up slightly against that currency Friday, fetching 1.6365 marks.
Many analysts are bullish on marks because the Bundesbank, Germany's central bank, is expected to hold the line on interest rates prior to the launch of the euro currency next year. 
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