NEW YORK (CNNfn) - Treasury securities rose late Monday as investors bet an increase in the U.S. budget surplus will mean the government will issue fewer bonds in the years ahead.
In currency markets, the dollar rose against the yen but edged lower versus the euro.
In a press conference, President Clinton said he wanted to use a $1.87 trillion projected surplus over the next ten years to pay off the nation's debt.
That news, like similar announcements in the past, drew buyers into U.S. fixed-income securities suddenly viewed as becoming scarcer than previously thought.
The Clinton announcement, said Kevin Flanagan, bond trader at Morgan Stanley Dean Witter, "revived talk about eliminating the budget surplus and more aggressive debt buybacks."
 Just before 3:20 p.m. ET, the price of the 10-year note rose 19/32 to 102-27/32. Its yield, which moves inversely to its price, fell to 6.10 percent from 6.18 percent Friday. The price of the 30-year bond rose 22/32 to 103-20/32, its yield falling to 5.98 percent from 6.03 percent Friday.
Explaining the gains, Flanagan also cited late week's sell-off, which pushed the yield on the 30-year to an attractive 6 percent.
Still, Flanagan called the trading light ahead of Tuesday's Federal Reserve policy makers meeting. With a string of data showing six interest rate hikes in a year have begun to slow the economy, many analysts say the Fed likely will leave rates steady.
 But some allow for the possibility the Fed could raise rates by a small quarter percentage point. The tone of the Fed's statements, meanwhile, will be closely parsed for clues as to how the Fed may act at its next meeting in August.
David Ging, bond strategist at Donaldson Lufkin & Jenrette, said the market is looking nervously beyond the Fed meeting to June's economic data. Consumer and producer prices along with retail sales are not expected to slow as much as they did in May, a phenomenon that can lead to sell-offs in the inflation-sensitive fixed income market.
As such, Ging is not bullish on Treasurys in the short term and recommends selling on any strength.
There hasn't been much strength recently. Bond prices rose through late May but then fell into early June. The action has left prices relatively flat over the last four weeks. Fears of another rate hike in August could limit any gains.
"I don't think you can assume the Fed's tightening cycle is done," Morgan Stanley's Flanagan said."
Dollar mixed
In currency markets, the dollar rose against the yen but edged lower versus the euro.
Just before 3:20 p.m. ET Monday, the euro rose to 93.81cents from 93.55 cents Friday. The dollar, meanwhile, climbed to 105.74 yen from 104.61 Friday.
 The yen surged against the dollar last week. Analysts blamed Monday's turnaround to rumors that a rating agency is prepared to downgrade Japan's debt.
"Ongoing fears of possible Bank of Japan intervention combined with renewed rumors of a possible downgrade of Japan's credit rating also weighed on the yen," wrote Alex Beuzelin, market analysts at Ruesch International. 
|
