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Bonds rest from choppy day
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May 5, 1999: 3:32 p.m. ET
Traders struggle between positive Treasury Dept. news, painful data
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NEW YORK (CNNfn) - The U.S. bond market limped toward the close Wednesday after a choppy session and conflicting signals left traders dazed and with little more direction than they had when they started.
Shortly before 3 p.m. ET, the benchmark 30-year Treasury bond was back where it started, trading up 2/32 of a point in price at 93-15/32 to yield 5.70 percent.
Traders said the market was drifting, pulled in alternating directions by fluctuations in futures trading after discouraging economic data and a bond-positive Treasury announcement largely canceled each other out.
Underlying sentiment remained gloomy as the long bond's yield continued to flirt with the key 5.75 percent resistance level for the second day in a row. The yield hit a nine-month high Tuesday and retreated only minimally in Wednesday trading, leading traders to forecast yields of 5.80 percent or even higher on the horizon.
The Treasury Department's morning refunding announcement gave bond bulls some limited cheer by slightly narrowing the supply of long-term paper in the pipeline. The Treasury will auction off only $12 billion in 10-year notes and $15 billion in 5-year debt next week, draining $1.8 billion in maturing paper from the market.
However, the Treasury failed to confirm the bond market's hopes of less frequent auctions in the future, dulling the announcement's positive impact somewhat.
Shortly thereafter, a tide of unfavorable economic data left the market unbalanced again by feeding fears that economic expansion will generate increasing inflationary pressures. Inflation lowers bonds' fixed returns in real terms, making them a less effective option for investors.
Leading the economic barrage were March factory orders, which rose to 2 percent, much higher than the bond market had expected. The National Association of Purchasing Management (NAPM) chimed in with a higher-than-expected non-manufacturing business index, sinking spirits in the bond market for the third time in five sessions.
According to NAPM, non-manufacturing business conditions improved to 64 in April from 62.5 in March, a significant upturn. The higher the reading is above 50, the faster the economy is expanding.
Euro takes control
Bond traders found little comfort in currency markets, where the dollar retreated dramatically from the euro and slipped away from the yen.
Traders said the euro was enjoying a premature peace dividend as investors bought the rumor of a diplomatic solution to Balkan conflict. Shortly before 3 p.m. ET, the European currency had climbed more than a full cent to $1.0737, having closed Tuesday at an intraday high of $1.063.
According to the Financial Times, Yugoslav President Slobodan Milosevic is now negotiating conditions under which United Nations forces will be allowed to enter the breakaway Yugoslav province of Kosovo. War between Yugoslavia and NATO, now in its second month, has forced investors to the security of the dollar, helping push the euro to lifetime lows.
Yen trading remained uninspired as global investors abstained from both the Japanese stock market, closed for the last day of the "Golden Week" holidays, and U.S. stocks, which continued their decline from Monday's record highs.
The dollar suspended its struggle with the 121-yen level, falling to 120.68 yen.
The global ebb and flow of capital into stocks has driven yen markets since March, when Japanese investors parked their funds back in yen-denominated securities ahead of their country's fiscal new year on April 1. In April, international traders picked up the tempo, throwing dollars at the rallying Tokyo stock market. 
-- by staff writer Robert Scott Martin
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