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Treasurys drift lower
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January 18, 2000: 3:47 p.m. ET
Rate hike fears, surging oil price hit Treasurys; euro inches up
By Staff Writer Jill Bebar
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NEW YORK (CNNfn) - Treasury bonds fell Tuesday, pulling yields to their highest levels in more than two-and-a-half years, amid concerns the Federal Reserve will launch a series of interest rate hikes ahead. Surging oil prices added to the concern.
"The market is trading on fear. People view a 25 basis point (a quarter percentage point) hike in February followed by another 25 in March as fact. There's fear now of more than that," said Bill Hornbarger, fixed income strategist at A.G. Edwards.
Just after 3 p.m. ET, the price of the benchmark 30-year bond fell 23/32 to 92-2/32. Its yield, which moves inversely to its price, rose to 6.74 percent -- its highest level since June 30, 1997-- from 6.68 percent Friday.
Although traders said the session was fairly quiet following the Dr. Martin Luther King Jr. holiday, bonds remained pressured ahead of the Fed monetary policy meeting Feb. 1 and 2. Analysts widely expect the central bank to increase interest rates by a quarter percentage point in February and many forecast another hike at the next meeting, March 21.
"Buyers are sitting on the sidelines. There is no reason to jump into the marketplace. They are biding their time until the market finds a bottom," said Scott Graham, head government trader at Prudential Securities.
One factor pressuring the market was rising oil prices. In New York, February crude oil futures last traded at $28.81 a barrel, over nine-year highs. Rising oil hints of higher inflation ahead.
"The fact that oil is so strong is adding fuel to the fire," A.G. Edwards' Hornbarger said.
In addition, continued weakness in European bonds and corporate and agency supply weighed on the market. The 10-year sector was hit particularly hard following the launch of a $2 billion 10-year issue by the Inter-American Development Bank.
Corporate and agency bonds are considered attractive, as their higher yield could draw investors from Treasurys.
Euro regains footing
In the currency markets, the euro crawled off a two-week low against the U.S. dollar. "The euro was unable to go much lower. Traders decided to take profits, which enabled it to recover lost ground," said Alex Beuzelin, senior market analyst at Ruesch International.
Just after 3 p.m. ET, the single currency rose to $1.0122 from $1.0120 Friday, representing a slight decline in the dollar's value.
Meanwhile, the dollar changed hands at 105.66 yen, up from 104.85 Friday, a 0.8 percent gain in the dollar's value. 
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