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NAPM spurs new bond slide
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April 1, 1999: 3:47 p.m. ET
Manufacturing statistics prove too robust, leading Treasury prices deeper down
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NEW YORK (CNNfn) - For the second day in a row, Treasury bonds plunged Thursday after reports of surprisingly strong U.S. manufacturing growth unbalanced an already nervous market.
The benchmark 30-year Treasury bond ended a truncated trading day down 20/32 of a point in price at 93-29/32, yielding 5.67 percent. Since Tuesday, yields have surged a total of 9 basis points.
Once again, traders attributed the bond's fall to discouraging news from the National Association of Purchasing Managers (NAPM). According to figures released Thursday by the business survey committee, the manufacturing sector continues to gather strength, pushing the March NAPM manufacturing index to 54.3 from a level of 52.4 a month ago.
The news only served to deepen the bond market's manufacturing gloom. After Wednesday's release of the Chicago-area component of the national report, investors now fear that the manufacturing sector, which formerly acted as a drag on the otherwise robust economy, could be making a dramatic recovery.
The Chicago release alone kicked the long bond down a full point Wednesday and triggered a sympathetic downturn in the stock market.
An overly-expansive economy is a negative factor for bonds, which depend on stable inflation in order to remain attractive to investors. If the economy grows too quickly, it could create inflation, lowering the real return that bonds and other fixed-income securities generate on investment.
The bond market will close at noon Friday ahead of the Easter holiday, remaining open through the morning session to allow traders to respond to the Labor Department's release of March payroll statistics.
Dollar also wary
Caution was also the keynote for money markets, as currency traders kept their positions light to prevent being caught by any unwelcome weekend surprises.
By 3:00 p.m. ET, the dollar had regained its upward trajectory against the yen to trade at 120.42 yen, but foundered against the euro. The European currency firmed to $1.0798, bidding at least a temporary farewell to the lows explored in its recent plunge.
However, activity was light, with few investors daring to gamble ahead of a long holiday weekend. London's currency market, the center of global monetary exchange, will close Friday ahead of the Easter holiday and won't reopen until Tuesday. U.S. currency markets also will close Friday.
Developments in the Balkans didn't help traders build a solid outlook. NATO's military intervention against Yugoslavia is now in its second week, and the overhanging risk of the situation worsening over the long weekend kept the market quiet.
Much of the trading that did take place was slanted toward the dollar in a reflexive but lackluster flight-to-quality bid, but European traders wanting to keep their money close at hand in the event of a Balkan breakthrough bet on the euro.
Quality flight from the yen was less subdued, as the annual flood of Japanese capital back into its native currency ended and Japanese vice finance minister Eisuke Sakakibara reiterated the official position that a strong yen is bad for Japan's economy.
Sakakibara, known as "Mister Yen" for his painstaking attention to currency markets, said overnight that the yen isn't overvalued at 118 per dollar.
Global traders were however reluctant to abandon yen positions ahead of Monday's tankan survey of Japanese business sentiment. Many economists now predict the quarterly report will reflect the first upturn in Japanese economic confidence in two years, encouraging investors to keep their yen holdings in the short term. 
-- by staff writer Robert Scott Martin
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