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Day of rest for Treasurys
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July 2, 1999: 3:32 p.m. ET
Bearish data fails to spur additional bond selling in rate-weary market
By Staff Writer Robert Scott Martin
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NEW YORK (CNNfn) - Bonds drifted to an flat close Friday, ending an exhilarating week of interest-rate relief on a quiet note as investors turned away from economic data to enjoy a three-day weekend.
The benchmark 30-year Treasury bond closed an abbreviated day of pre-holiday trading unchanged at 89-18/32, to yield 6 percent. Activity was light ahead of the long Independence Day weekend, with many market participants sitting the day out entirely.
Despite the balanced final note, the week was otherwise a euphoric one for the bond market, with the long bond surging nearly 2 full points in price while the yield, which travels in the opposite direction, recoiled 15 basis points, or 0.15 of a percentage point.
The burst of enthusiasm can be directly attributed to the Federal Reserve, architect of so much of the bond market's suffering in past weeks. The Fed voted Wednesday to abandon its interest rate-tightening bias, leaving rate-wary investors with hope that the week's perfunctory rate hike would be the last for a while.
Data fails to rouse interest
On Friday, traders said the morning's assortment of economic data, although deeply unflattering for the bond market, failed to inspire much selling activity.
"Overall a little stronger than expected but something for everyone," said Kathleen Camilli, chief economist at Tucker Anthony. "We weren't expecting an uptick in the unemployment rate, we got one, we weren't expecting non-farm payrolls as strong, we got that too, and we weren't really expecting average hourly earnings to be up as much."
According to the June payrolls report, the U.S. economy added 268,000 jobs in the month, growing more rapidly than the 220,000 figure investors had expected.
The report's wage component was more directly bearish for the bond market. Average hourly wages crept up 5 cents in June to $13.23, again coming in higher than the 4-cent increase economists earlier forecast.
The Federal Reserve has pointed repeatedly to wage inflation as the likely avenue by which broader inflationary pressures will re-enter the U.S. economy. Inflation, in turn, depresses bond prices by biting into the fixed returns bonds offer, making them less attractive compared to stocks.
Strong job growth, as seen in the payrolls report, feeds wage inflation under normal circumstances. Given a growing number of open positions and a fixed number of workers, employers are forced to step up competition for qualified staff by offering higher salaries.
A similarly robust factory orders report likewise failed to provoke the weary bond market. Orders for manufactured goods climbed 1.1 percent in May, while economists had forecast an upturn of only 0.9 percent.
Euro near low, yen subdued
The dollar made mild headway against the yen, but gave the battered euro a day of rest. The European currency plunged more than a full cent on the dollar Thursday as speculators gave up hope that Europe would be able to catch up with the U.S. economy.
On Friday, the euro teetered on the slightest hint of support -- or neglect -- from monetary officials, slipping back to near its lifetime low after European Central Bank (ECB) official Eugenio Domingo Solans discounted the possibility of ECB currency intervention.
"At this moment no intervention is foreseen," Solans told reporters in Barcelona.
The statement only added to the perception in currency markets that the European Union is unwilling to support its currency, which has drifted to successive lows throughout its six-month trading life.
In late U.S. trading, the euro was almost unchanged from its previous closing level at $1.0238, near Thursday's all-time low of $1.0202.
Intervention hopes meanwhile kept dollar-yen trading restrained. While the ECB has expressed a lack of interest in manipulating currency markets, the Bank of Japan (BOJ) repeatedly has intervened in currency markets to keep the yen subdued.
The BOJ sold yen for dollars and euros four times in June, and officials noted Thursday that they are watching euro-yen rates with special care. Japanese monetary authorities have said an overly strong yen would hamper the vital Japanese export sector, in turn risking the nation's still-fragile economic recovery.
The dollar floated faintly higher to 121 yen in late U.S. trading as analysts began to call Japan's escape from recession "overstated."
First-quarter Japanese gross domestic product (GDP) statistics, which sparked the yen's recent upward explosion, have come under fire in the Japanese press recently as a possible fake. However, on Friday Taichi Sakaiya, head of the influential Economic Planning Agency, denied the allegations.
Meanwhile, yen bulls are focused on Monday's release of the quarterly "tankan" report of business sentiment. Economists expect the index of large manufacturers to rise 11 points to a reading of minus 36, still deeply depressed but showing its second improvement in two years.
Should the index climb much higher than forecast, the yen could soar again, increasing the risk of BOJ action while U.S. currency markets are closed for the holiday.
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