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Bonds quiet, dollar surges
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February 10, 1999: 9:22 a.m. ET
Treasurys drift amid refunding sales, but dollar leaps ahead of BOJ meeting
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NEW YORK (CNNfn) - The U.S. bond market was back in deep reactive mode Wednesday as traders pulled back from firm positions ahead of the second day of a $35 billion refunding and an Alan Greenspan speech later in the week.
By 9:00 a.m. ET, the benchmark 30-year Treasury bond was unchanged at 99-7/32, yielding 5.30 percent.
The 10-year Treasury note, due to be refunded in an afternoon auction, was securely above the 98 price target set by the Treasury earlier, down 3/32 at 98-29/32 to yield 4.89 percent.
This means that the day's 10-year offering actually will be a reopening of last November's 10-year notes, maturing in 9-3/4 years.
However, traders were still cautious in the wake of Tuesday's uninspiring 5-year refunding, in which lukewarm demand and historically high opening yields conspired to deflate an early bond rally.
The market remained confident in a healthy response to Wednesday's offering, but many key players have already written it off, instead turning to a $10 billion sale of 30-year bonds on Thursday.
Others pointed to a Thursday speech by Federal Reserve Chairman Alan Greenspan as reason to play the waiting game for another day.
Although Greenspan is set to discuss the separation of banking and commerce, traders said the debt market still will focus on his comments in case the U.S. monetary policy chief reveals clues to a changing bias on interest rates.
Domestic wholesale inventories data due Wednesday was not expected to move the market appreciably.
Bond traders also seemed to ignore overnight comments from influential Wall Street analyst Ralph Acampora indicating that he is currently bearish on bond prices.
Acampora, the technical research director at Prudential Securities, said he would not be surprised if the long bond yield touches 6 percent -- a three-year high -- if it climbs above 5.4 in the short term.
BOJ rumors spur dollar gains
Meanwhile, interest rate speculation helped the dollar stay boisterous against the yen, crossing the key 115-yen barrier on hopes the Bank of Japan (BOJ) will lower Japan's already-depressed interest rates.
The greenback climbed to 115.19 yen, a full yen up from its previous close of 114.02.
Traders said currency markets on both sides of the Pacific were galvanized by a Wall Street Journal report that Washington is encouraging the BOJ to use monetary policy as a weapon against a recent spike in Japanese bond yields.
Yield on the benchmark Japanese 10-year government bond has climbed to 2.44 percent in the past week, an 18-month high, indicating dwindling long-term demand and provoking calls for the BOJ to take an active hand.
At risk is Japan's continued ability to fund massive stimulus packages aimed at repairing its stagnant economy.
According to the initial 1999/2000 Japanese federal budget, the nation plans to issuing a record 61 trillion yen ($532 billion) in government bonds this fiscal year, making it the world's largest debtor.
Of three major routes suggested so far for the BOJ, direct underwriting of the 1999/2000 bond offerings has repeatedly been ruled out as prohibited by the Japanese constitution.
While it is still possible that the BOJ may take the second of the three routes and simply step up its buying of existing government debt, traders said the WSJ report had sparked new rumors that the BOJ will move to lower interest rates instead.
Japan's prime discount rate has stood at a record low of 0.5 percent since September, 1995, making a new rate easing a dim prospect at best until recently.
Lower Japanese interest rates would encourage a softer yen, spurring dollar-buying.
The BOJ's monetary policy board meets Friday.
Meanwhile, the euro remained quiet but comparatively stable against the dollar, gaining support from official denials of a European rate cut in the near future.
At 9:00 a.m. ET, the euro was at $1.135, only slightly stronger than its previous close of $1.1316.
Late Tuesday, European Central Bank President Wim Duisenberg had said European economic growth remains stable, negating any need for interest cuts. 
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