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Dollar, bond in rebound
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February 16, 1999: 8:59 a.m. ET
Firm hand in Japanese money markets stirs Treasury rally, dollar leap
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NEW YORK (CNNfn) - After weeks spent retreating from soaring Japanese bond yields, U.S. Treasury bonds rallied on encouraging official comments from Japan, while a likewise resurgent dollar offered reinforcement.
By 9:00 a.m. ET, the benchmark 30-year Treasury bond was up 31/32 of a point at 98-13/32, sinking the yield back down to 5.35 percent.
Two-year notes also were firmer, up 2/32 at 99-9/32 to yield 4.88 percent.
Traders said the market once again was reacting almost entirely to developments in the Japanese bond market, which rallied overnight on indications that officials will act soon to stem the flood of supply there.
Acting in concert with the Bank of Japan, the Ministry of Finance (MOF) said Monday that it will resume its bond-buying programs in order to tighten supply.
In addition, the MOF, which issues Japanese government bonds, said it will reorganize an upcoming bond offering, cutting its March issue of 10-year bonds by 400 billion yen ($3.41 billion) and making up the difference with shorter-term debt.
At 30 trillion yen ($263 billion), the March bond offering has been a primary factor weighing on the Japanese bond market, as many traders have feared it would swamp an already listing market with debt.
Japanese government bond yields have exploded 200 percent in recent weeks to 19-month highs due to fears that retail demand will erode even further.
However, after the MOF announcement, the yield on the benchmark 10-year bond fell to 1.860 percent from its previous level around 2.20 percent.
At home, U.S. bond traders will be watching Wall Street and an assortment of minor economic data, of which retail sales figures probably will be the most compelling.
The Treasury market could ease off its Japan-inspired highs when the U.S. stock market opens, as an anticipated opening surge there should help blunt interest in fixed-income securities.
Dollar revitalized
Currency markets also were galvanized by the Ministry of Finance comments, particularly hints that Japan will back down from supporting a strong yen, instead allowing the currency to deflate with local interest rates.
By 9:00 a.m. ET, the dollar was back above the 118-yen level for the first time in two months at 118.15 yen, a full 4 yen over its previous close of 114.04.
The Bank of Japan voted Friday to cut the key overnight call rate to 0.15 percent from 0.25 percent.
The euro continued to explore new depths, due largely to the dollar's newfound vitality but also to worries that the European Central Bank may signal interest rate cuts when it meets Thursday.
By 9:00 a.m. ET, the euro was at $1.1166 after hitting a record low of $1.1162 overnight.
As the yen's sudden retreat demonstrates, lower interest rates generally put downward pressure on currencies, and traders expect the euro to slide if European rates fall. 
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