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Weak stocks lift bonds
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May 22, 2000: 3:20 p.m. ET
Investors scurry for safe haven as equities drop; euro rebounds vs. dollar
By Staff Writer Jill Bebar
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NEW YORK (CNNfn) - Treasury bonds ended moderately higher Monday as investors fled a plunging U.S. stock market for the relative safety of government securities.
In the currency markets, the euro rebounded against the dollar on the back of the sell-off in equities. Mounting expectations of an interest rate hike by the European Central Bank Thursday also helped the currency.
The Treasury market received support throughout the session from heavy losses among stocks, particularly the Nasdaq composite index, which fell
below its previous lows for this year.
"The dramatic sell-off in equities is really driving the bond market today," said Bruce Alston, director of fixed income at Value Line Asset Management.
Shortly after 3 p.m. ET, the 30-year Treasury bond rose 15/32 of a point in price to 101-1/32. The yield, which moves in the opposite direction to the price, fell to 6.17 percent from 6.23 percent Friday.
The 10-year note, which many now consider the market benchmark, gained 15/32 to 100-15/32, its yield retreating to 6.43 percent from 6.51 percent.
When stocks decline, investors often reallocate money out of stocks into Treasurys. Bill Hornbarger, fixed income strategist at A.G. Edwards, told CNN's Before Hours he saw this type of shift. (390K WAV) (390K AIFF)
But overall, analysts said the move higher was exaggerated by limited  trading activity. Value Line's Alston said the market's gains likely will be temporary because there is still enough concern about rising inflation and interest rates among investors to weigh the market.
With few signs of an economic slowdown, the Federal Reserve has raised
short-term interest rates six times since last June. The tightening has brought the federal funds rate, the rate banks charge each other for borrowing money, to 6.5 percent.
One reason for economic strength is stock market wealth, and there was speculation as to whether the central bank will tighten further if stocks continue to decline. But Bill Cunningham, chief bond strategist at Chase Securities, said even if equities remain weak, it is not going to prevent the Fed from boosting rates.
"The wealth effect has to be dampened in order to slow the economy to a sustainable growth pace," he said.
Upcoming economic data will provide a significant role in the Fed's deliberations at its next monetary policy on June 27-28. This week's calendar, includes Thursday's revision to first-quarter Gross Domestic Product, the broadest measure of goods and services produced.
Analysts polled by Briefing.com forecast first-quarter GDP to be revised down slightly to 5.2 percent from 5.4 percent originally reported.
(Click here for a look at Briefing.com's economic calendar.)
Also slated for Thursday is an address by Fed Chairman Alan Greenspan to a banking group in San Francisco. Market participants will listen closely to the Fed chief for clues about upcoming monetary policy.
With a lack of key economic news this week, movements in stocks may continue to have an impact on the Treasury market.
Euro advances vs. dollar
With the absence of significant economic news Monday, trading in the currency markets also was subdued. The euro rose against the dollar on the back of the sell-off on Wall Street.
Analysts said the prospect of a rate hike by the European Central Bank (ECB) when it meets Thursday also supported the single currency
But sentiment for the euro remained negative as traders noted fundamentals for the currency have not changed. Shortly after 3 p.m. ET, the euro traded at 90.48 cents, up from 89.75 cents Friday, a 0.8 percent loss in the dollar's value.
Meanwhile, the dollar fell slightly against the yen, changing hands at 107.05 yen from 107.12 yen Friday. 
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