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Bonds appreciate Greenspan
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March 9, 1999: 3:34 p.m. ET
30-year Treasury yield slides to 5.53 percent after 'no inflation' comments
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NEW YORK (CNNfn) - Bond traders took heart from encouraging U.S. economic data and Alan Greenspan's inability to discern "obvious signs" of inflation on Tuesday, driving Treasury prices firmly higher.
By 3:00 p.m. ET, the benchmark 30-year Treasury bond had climbed 23/32 of a point in price to 95-25/32, sending the yield back 7 basis points to 5.53 percent.
Traders said the market was united in its applause for Federal Reserve Chairman Greenspan's comment that there are "no obvious signs of emerging inflation pressures" despite numerous signs of continuing strong U.S. economic growth.
Inflation tends to depress bond prices by rendering the fixed-income securities less attractive as an investment. Recent speculation that the Federal Reserve may now see growing inflationary pressures ahead spurred fears of higher interest rates, driving Treasury yields to six-month highs.
The bond market got additional short-term support from the morning's economic data. According to the Labor Department, fourth-quarter productivity, an indicator of output per worker hour, grew to a revised six-year high rate of 4.6 percent. Earlier estimates had shown growth of only 3.7 percent, while economists had forecast 4.2 percent growth.
Greenspan and other monetary arbiters are known to pay especially close attention to productivity and the associated figure of unit labor costs. Unit labor was revised to show a decline of 1.1 percent, indicating lower producer costs.
Because high productivity and low unit labor costs allow businesses to deliver more goods and services without hiring more workers, Tuesday's figures portray an economy that is growing without generating appreciable wage inflation.
The news allowed bond traders to retain some optimism inspired by Friday's payroll figures, boosting Treasury prices along with confidence that the Federal Open Monetary Committee will not decide to lift interest rates in the next few months.
"The market looks like it's in good shape," said Mark Pollick, fixed-income security analyst at Prudential Securities, adding that most analysts agree in thinking the Fed will sit on its hands a little while longer.
However, while encouraging in the short term, the news does nothing to erase Treasury yields' rising trend, said Elaine Yager, senior technical analyst at Herzog Heine Geduld.
"We had a breakdown in bonds in October of '98," she said. "We confirmed that breakdown about a month ago when the secular trend moved off of the uptrend and went to neutral, and we can stay in that phase at least through October of this year."
Dollar looks for guidance
Dollar bulls, meanwhile, had hoped for lower productivity and higher labor costs, which would in turn lead to inflation and growing dollar demand.
By 3:00 p.m. ET, the dollar had resumed its retreat against the yen, falling to 120.96 yen from its previous close of 121.71.
Traders said Tokyo's overnight stock market rally had eased fears that Japan's economic woes could continue indefinitely, sparking fresh demand for yen.
The greenback was flat against the euro at $1.0888. 
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