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Yen on the run, bonds yawn
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April 21, 1999: 3:28 p.m. ET
IMF report lifts dollar, but Treasury market retreats on late supply fears
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NEW YORK (CNNfn) - A resurgent dollar kept the yen under pressure Wednesday, but the euro managed to recover most of its losses and the bond market found the news of short-term comfort at best.
Shortly before 3:00 p.m. ET, the benchmark 30-year Treasury bond was down 1/32 of a point in price at 96-4/32, pushing the yield up to 5.51 percent.
During the day, bonds benefited from the dollar's strength as well as transitory capital flows coming in from the jittery stock market.
However, these inflows ceased as Wall Street gathered its confidence, leaving bond traders staring directly in the face of unwelcome supply news. The Treasury Department said it won't decrease the size of its next offering of two-year debt as traders had hoped, instead leaving the float at a firm $15 billion.
Otherwise, Lehman Brothers economist Joel Kent said bonds were drifting largely unmoved in "a data void," moving in reaction to stock fluctuations.
Dollar ascending
As for the dollar, news that the U.S. economy is still the fastest-growing engine of global wealth gave the currency its second consecutive day in the sun.
By 3:00 p.m. ET, the dollar had extended its early gains, climbing to 119.69 yen in its first crossing of the 119-yen Rubicon for the first time in nearly a week. Over the last few days, the U.S. currency dipped as low as 117.47 yen, near the lower edge of the unofficial 117-120 yen trading band advocated by Japanese monetary officials.
Currency traders attributed the dollar's fresh upward spurt to gloomy comments from the International Monetary Fund (IMF).
In a world economic report released Tuesday, the IMF repudiated speculation that Japan's beleaguered economy is finally recovering. Instead, the global fiscal watchdog predicted that the Japanese economy will remain deep in recession this year, shrinking at a rate of 1.4 percent.
"We do not yet see clear evidence that we have got a turning point in Japan," IMF chief economist Michael Mussa told reporters after the release. "We need a little bit more information that the bottom has occurred"
The report doused global investors' confidence in Japanese securities, sending Tokyo stocks lower and stifling the flow of yen-buying of recent weeks.
Japanese Prime Minister Keizo Obuchi was reported by news agency Jiji as finding the forecast "harsh."
Although the IMF also had stern words for Europe, the euro managed to recover from the worst of its overnight lows, down minimally against the dollar at $1.0617.
In particular, the IMF said Europe's economic conditions have kept challenges facing the euro "formidable," and projected that growth in the region will slow in 1999 before surging again in 2000.
The unclouded horizon
Other than watching Wall Street, U.S. money markets had little domestic news to digest, with no economic data on the horizon until Thursday.
On that day, however, Federal Reserve Chairman Alan Greenspan and Deputy Treasury Secretary Lawrence Summers are scheduled to testify before the Senate Banking Committee on the use of the U.S. dollar as the official currency in emerging economies.
Their remarks are unlikely to have direct bearing on bond markets, but both Treasury traders and money-market investors alike will scrutinize the transcripts for hints of the broader prospects for the U.S. economy. 
-- by staff writer Robert Scott Martin
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