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Treasury prices dig deep
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March 1, 1999: 3:21 p.m. ET
Dollar climbs on strong economic data, but bonds resume last week's fall
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NEW YORK (CNNfn) - The U.S. bond market found its tentative rally stampeded under a seemingly relentless march of robust economic reports Monday, driving Treasury prices down and reopening questions of interest-rate hikes ahead.
The benchmark 30-year Treasury bond fell immediately after the release of a surprisingly strong U.S. manufacturing report and remained deep in the red throughout the day. By late afternoon, the long bond was down 1-16/32 of a point in price at 93-27/32, while the yield leapt 7 basis points to 5.67 percent.
"People have certainly been spooked," said Arthur Steinmetz, bond manager at Oppenheimer Funds. "The bond market has been trading dismally over the last few weeks. A lot of things are going on, but I think people were reading a bit too much into (Federal Reserve Chairman Alan) Greenspan's Humphrey-Hawkins testimony."
Since Greenspan's two-day round of congressional remarks started last Tuesday, the long bond's yield has soared a cumulative 30 basis points, surging as inflation-sensitive investors fled the Treasury market after taking the comments to signify a trend toward higher U.S. rates ahead.
However, Steinmetz took a calmer view of the Fed chief's testimony, saying that it was "quite finely balanced" and that "wage pressures (and) pricing power in the retail sector . . . are keeping a pretty good lid on inflation."
Getting over Greenspan
Another voice crying for balance in the bond market was John Williams, chief global markets economist at Bankers Trust. While Williams said Treasury trading is likely to remain "worrisome" throughout the week, he also noted that bond yields have climbed a long way already and he doesn't see them getting much higher in the near term.
Bond activity traditionally declines in late February and throughout March as Japanese financial institutions - primary investors in the Treasury market - sell overseas investments ahead of the Japanese fiscal new year April 1.
Even in those terms, volumes on the Treasury market have been especially thin this year, down about 26 percent from applicable 1998 figures.
Oppenheimer's Steinmetz saw the Japanese repatriation season as a chance for the Treasury market to take stock of its options, particularly in light of recent turmoil in the Tokyo bond market.
"Long-term interest rates in Japan have more than doubled from their lows," he said. "That has certainly given a little bit of concern to the U.S. bond market as well, but now we're talking about major plans for the (Japanese) government to prop up that bond market . . . That's going to give a little support."
Dollar likes data
For its part, the morning's helping of economic data had underlined the relative strength of the U.S. economy against the sluggish economic growth of Europe and Japan. While bond traders recoiled at the news, the figures gave the dollar the added surge of enthusiasm it needed to renew its rise against both the yen and the euro.
By late afternoon, the U.S. currency had climbed to 119.72 yen, breaking out of the narrow trading range seen earlier in the day. The euro slid dangerously close to all-time lows, falling to $1.0889 from its previous close of $1.1047.
Most signs point to the United States as the most vital of the three global economies. Germany, the European Union's driving economy, has lapsed into negative growth and could slip into a technical recession at the end of the current quarter. Calls for European interest-rate cuts to prop up the continent's sagging growth picture have been persistent in recent months, leading the euro to test new lows.
Japan, meanwhile, has suffered a pernicious and widespread gamut of economic difficulties, of which recession is but one of the more obvious..
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