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Bonds rally despite dollar
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January 11, 1999: 3:19 p.m. ET
30-year Treasury inches forward in late trading, but dollar/yen remains weak
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NEW YORK (CNNfn) - The U.S. bond market got a bit of breathing room from a stock pullback late Monday, but a spiraling dollar and tightening allocations convinced traders that the respite would be short-lived.
The benchmark 30-year Treasury bond was trading at 99-18/32 at 3 p.m. ET, up a razor-thin 1/32 but substantially recovered from its session low of 99-1/32. The yield slipped to 5.27 percent as prices improved.
Two-year notes were down 1/32 at 99-25/32, yielding 4.77 percent.
Late technical support came to the market's rescue, traders said, with short-term buying giving a boost to the two-year issue in particular once yields cracked 4.75 percent.
On a broader scale, a bout of profit taking on Wall Street was the main factor sparking the long bond's recovery. The Dow Jones industrials were down 106.84 points at 9,536.48 late in the session, driving risk-wary funds back into the embrace of fixed-income securities.
However, a sliding dollar -- the fundamental reason for the bond's decline - remained uncorrected.
In late New York trading, the dollar was hovering at 108.76 yen, near a 28-month low of 108.22 touched earlier in the day. It had closed at 111.01/06 on Friday, falling more than 2 yen over the weekend.
Sources familiar with the Japanese financial establishment have said intervention from the Bank of Japan to shore up the dollar before the currency cracks the 105 yen threshold is unlikely.
The euro, meanwhile, retreated to its lowest point against the dollar in its week-long history, dragged to $1.148 from its $1.158 Friday close by the weight of disappointing German factory orders.
One constituent of the dollar's retreat was concern over the health of Brazil's economy, Latin America's largest.
A debt payment feud between the rich state of Minas Gerais and the federal government has resurrected fears of political deadlock in Brazil, while increasing numbers of analysts now predict a devaluation ahead for Brazil's currency, the real.
Ironically, the Brazil situation became a spur for the bond's recovery as well as a cause of its weakness late in the day, as traders said funds were fleeing emerging debt to the comparative safety of long-term U.S. issues.
A more ominous indicator of Treasurys' long-term prospects came from two of the world's most respected investment firms, both of which cast a vote of lessened confidence in the U.S. bond market.
Goldman Sachs warned traders to be "cautious in making commitments to Treasurys right now," raising its three-month prediction of 30-year bond yields to 5.40 percent from 5.20 percent.
Donaldson Lufkin & Jenrette also lowered its outlook on bonds, trimming its recommended portfolio from 20 percent Treasurys allocation to 15 percent.
Among other key U.S. debt issues, 10-year notes were off 4/32 at 98-30/32, yielding 4.88 percent. Five-year notes slipped 2/32 to 97-28/32, yielding 4.74 percent. 
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