|
U.S. Treasurys lose steam
|
 |
June 23, 2000: 3:46 p.m. ET
Low trading volume, corporate bond supply depress prices; dollar gains
By Staff Writer Catherine Tymkiw
|
NEW YORK (CNNfn) - U.S. Treasury securities fell Friday due to a growing supply of corporate bond issues which pressured prices, mostly in the 30-year bond, coupled with light trading volume ahead of the Federal Reserve's upcoming meeting.
The dollar made modest gains against both the euro and the yen.
"Treasury bond prices have sagged through most of the day as underwriting managers of new, and pending, corporate and federal agency issues have been selling to hedge possible unsuccessful sales of their issues," wrote Doug McAllister, senior vice president with Prudential Securities, in a note to clients. "Since many market participants are on the sidelines waiting for the Fed to decide whether or not it will hike interest rates another time, market activity is very thin."
 The 30-year bond shed 1 to 123-15/16, its yield, which moves inversely to its price, advanced to 6.03 from 5.96 percent Thursday. The 10-year note fell 9/16 to 102-1/4. Its yield rose to 6.18 percent from 6.11 percent.
"In all reality, it's been a quiet day and there's not a lot of participation," said Don Kowalchik, debt strategist at AG Edwards. "We're going into an FOMC meeting next week so everybody is sitting on the sidelines a little."
Corporate bond issues are also pressuring securities and they are being issued based on the 30-year bond, said analysts. Corporate issues are often hedged against treasurys.
If an issuer were holding a large supply of corporate bonds, they would sell treasury bonds to keep their risk at a minimum. As they sell the corporate bonds, they would likely buy back treasury bonds.
"People are putting corporate bonds in their inventories," said Mario DeRose, fixed income analyst with Edward Jones. "It's a combination of [corporate bond] supply and very thin trading."
Pressures from oil and Fed
Rising oil prices continue to weigh on the market as participants play the waiting game to get beyond the Fed meeting with some idea of whether or not inflation is under control.
Ministers from the Organization of Petroleum Exporting Countries agreed Wednesday to raise oil production by 708,000 barrels a day, or roughly 3 percent. This will lift output to 25.4 million barrels per day from 24.7 million barrels.
"If the economy is indeed slowing, growth and inflation are somewhat independent variables. If oil [prices] don't stop going up, that will be another factor that will exert pressure for more rate hikes, even if the economy continues to slow," said Jon Jacobs, fixed income analyst with IDEAglobal.com
If inflation takes hold and interest rates move higher, bond yields will rise while prices will fall.
 "The market was hoping for more of an increase [in oil production]," said DeRose. "The price isn't going to go down dramatically anytime soon and that's a negative as far as bonds are concerned."
Prices for crude oil for August delivery rose 27 cents to $30.42 a barrel on London's International Petroleum Exchange. The leading U.S. benchmark index for light sweet crude for August delivery was little changed on the New York Mercantile Exchange, advancing 4 cents to $32.23 a barrel.
Meanwhile, most analysts expect no interest rate hikes at the June 27-28 Federal Reserve meeting, but say the market will hold its breath until the meeting ends.
"I think everyone expects the Fed to have a hawkish statement -- to not raise rates, but to say that the balance remains tilted toward upside pressure on inflation," said Jacobs.
Dollar gains strength
The dollar rose against the yen in late trading over heightened concerns that Japan's central bank is getting set to raise interest rates.
Around 3 p.m. ET, the dollar rose to 104.72 yen from 104.56 late Thursday. However, the dollar fell earlier Friday near 104 yen, its lowest level in two months.
The dollar rose modestly against the euro in quiet trading. The euro was little changed, falling to 93.62 cents from 93.64 cents.
 "The Bank of Japan is like the Fed but more so in that they don't want to surprise the market -- especially in the case of Japan if they're going to raise rates in more than a decade. So senior Bank of Japan officials have been constantly talking about the conditions that would make it appropriate for them to end zero-interest rate policy," said Jacobs.
If Japan's central bank raises short-term interest rates, that would tend to boost the yen. Jacobs said he expects a rate hike when the bank's policy makers meet in September.
Meanwhile, the euro continues to come under pressure, which hurts European bond markets and, consequently, causes selling in U.S. markets.
"Until several days ago it looked like the euro was trying to mount a recovery," said Jacobs. "But it failed and it looks like it's heading lower again. We see the euro continuing to be under pressure mainly because the U.S. market, after the Fed does nothing next week, will focus on the prospect that the Fed will raise rates in the future." 
|
|
|
|
|
 |
|
