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Bonds rally on supply fears
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March 14, 2000: 3:21 p.m. ET
Expectations of low supply fuel gains; strong retail sales shrugged off
By Staff Writer Jill Bebar
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NEW YORK (CNNfn) - Treasury bonds ended sharply higher Tuesday after the U.S. Treasury announced it will buy up to $1 billion in outstanding bonds in the second leg of its buyback program to reduce the nation's debt.
Analysts said speculation that the Treasury may buy back more than the $30 billion in long-term debt originally announced in late January bolstered prices.
"At this point the market is being driven by supply and demand," said Ken Fan, bond strategist at Paribas Capital Markets. "There are expectations of low supply for the rest of the year."
Shortly before 3 p.m. ET, the 30-year bond rallied 29/32 to 102. Its yield, which moves inversely to its price, fell to 6.10 percent from 6.16 percent Monday. The 10-year Treasury note gained 16/32 to 101-13/32, its yield dropping to 6.30 percent from 6.37 percent Monday.
Early in the session, the Treasury said it will buy back 30-year bonds Thursday with maturity dates between May 2018 and November 2021 through open market operations conducted by the Federal Reserve.
Last week's initial phase of the program went smoothly, with the Treasury buying $1 billion of outstanding bonds in maturities ranging from February 2015 to February 2020, with an average yield of 6.49 percent. The operation marked the first time in 70 years the government has repurchased national debt.
A midday turnaround for technology stocks, which pulled the tech-heavy Nasdaq composite index lower, also provided support to fixed income securities. In late trade, the index declined over two percent.
Movements in the global equities markets have heavily impacted Treasurys recently, with investors turning to the relative safety of government securities amid stock weakness.
More data to digest
Investors largely ignored the latest economic news that showed consumer spending remained strong. Retail sales rose 1.1 percent in February against an upwardly revised 0.4 percent increase in January, according to the Commerce Department.
But market participants expect some volatility late Wednesday as traders square positions ahead of two key inflation reports for February, Thursday's producer price index and Friday's consumer price index. Both reports are expected to be strong, reflecting the recent surge in energy prices, and may jolt the market.
"There's no question Thursday and Friday's numbers could be a catalyst for a substantial move in the Treasury market," said Joe LaVorgna, senior U.S. economist at Deutsche Bank Securities.
Analysts widely expect the Federal Reserve to increase short-term interest rates when it meets March 21. The central bank has hiked rates four times since June in order to slow the economy and control inflation. But consumer spending and confidence remain strong.
Wednesday's calendar includes January business inventories and February industrial production data.
(Click here for a look at Briefing.com economic calendar.)
Dollar slips
The dollar fell slightly against the major currencies Tuesday. Shortly before 3 p.m. ET, the dollar changed hands at 105.07 yen, down from 105.53 yen Monday, a 0.4 percent loss in the dollar's value.
Meanwhile, the euro traded at 96.72 cents, up from 96.40 cents Monday, a 0.3 percent loss in the dollar's value. 
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