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Bonds rally for second day
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October 14, 1998: 5:17 p.m. ET
Treasurys roll on "confluence" of factors: hedge funds, jittery Wall Street, retail slip
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NEW YORK (CNNfn) - U.S. Treasury bonds rocketed higher again Wednesday, buoyed by a "confluence" of factors including little faith in Wall Street's rally, hedge fund buys and a softer retail sector, analysts said.
At around 5 p.m. ET Wednesday, the benchmark 30-year Treasury was up 1-3/32 in price to 107-9/32, while the yield, which moves inversely to the price, fell to 5.02 percent.
"Again, another whipsaw day," said Anthony Crescenzi, bond analyst at Miller Tabak Hirsch. "What big news did we get today? ... Nothing."
But among the "confluence" of factors he cited was a Mortgage Bankers Association report showing mortgage refinancing hit an all-time high last week as Treasury issues soared.
But last week bond prices fell sharply, reducing the lure of refinancing until yields drop back near to the record low of 4.72 percent set last week. Now with loads of cash, mortgage lenders flock back into Treasurys to park their money safely.
"Since rates have bottomed out, we are going to see fewer [mortgage] prepayments in the near term," said Crescenzi.
The safe-haven appeal of bonds remains for weary stock investors too, even though the Dow Jones industrial average ended up slightly on Wednesday.
"There is a certain skepticism with regard to the rallies that we have seen in the stock market," said Crescenzi. "We have yet to see the worst of the economic news."
Among that economic news that helped bonds spurt higher Thursday was a report showing the second straight month of less-than-expected retail sales in September.
"I think people are beginning to see the economy is slowing," said David Horner, senior financial strategist at Merrill Lynch.
Bond market watchers said hedge fund D.E. Shaw, to which banking powerhouse BankAmerica is said to have had exposure of nearly $1 billion, had sent around "bid lists" of its holdings to solicit buyers.
Meanwhile, New York Federal Reserve Bank president William McDonough said that he doesn't foresee the Federal Reserve moving to cut interest rates before the next meeting of its policy-making panel in November.
McDonough said he felt there are new signals about a looming credit crunch in the bond market, but not in the economy overall.
D-Mark up, despite Buba rate cut buzz
Officials at Germany's Bundesbank made mild comments suggesting the need to seek lower interest rates. Many currency market analysts have expected the "Buba" to hold the line on interest rates ahead of next year's launch of the euro currency.
Despite that, the U.S. dollar dropped against the German mark. The greenback was down 1.17 pfennigs to 1.6399 marks late Wednesday.
But the Japanese yen drifted against the dollar, ahead of a key vote on banking and fiscal reform for Japan's recession-strapped economy.
The yen traded late Wednesday at 118.60 to the dollar, down nearly a full yen.
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