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Bonds are up; dollar dips
Bonds rally early on terror threats, then deflate on strong economic data. Dollar looses to yen.
August 2, 2004: 4:33 PM EDT

NEW YORK (CNN/Money) - U.S. Treasury bonds made a slight push upward Monday on news that terrorists plan to attack financial centers with truck bombs, but they failed to climb as high as expected after the release of strong economic data.

The dollar lost to the yen and was unchanged against the euro.

At about 4:00 p.m. ET, the benchmark 10-year note rose 9/32 of a point to 102-10/32 to yield 4.46 percent, down from 4.47 percent late Friday. The 30-year bond advanced 4/32 of a point to 102-19/32 to yield 5.19 percent, down from 5.2 percent late Friday. Prices and yields move in opposite directions.

The two-year Treasury note added 2/32 of a point to 100-6/32, yielding 2.65 percent, while the five-year note gained 3/32 of a point to yield 3.67 percent.

Following weekend intelligence warnings of a possible al Qaeda attack on the New York Stock Exchange and other financial institutions, investors moved their cash into safe-haven investments, such as bonds.

"The general theme is one of risk aversion," Adam Cole, senior currency strategist at Royal Bank of Canada Capital Markets, told Reuters. "We are seeing flows out of equities into bonds and out of the dollar into the Swiss franc and other currencies with strong external positions.

But manufacturing data for the month of July pointed to solid growth in the field, increasing investor anxiety that the growing economy will lead to rising inflation, which bond investors fear will deflate the value of their fixed-income investment.

The employment index did dip, but at 57.3 it was still strong by historical standards and did not change analysts' forecasts for a large rise in payrolls -- the July report is due to be released on Friday.

Overall though, some analysts characterized the mood on Wall Street as subdued.

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"People don't want to trade", said James Caron, a fixed-income strategist at Merrill Lynch Government Securities. "They don't even want to hear ideas. They just want to know their books are hedged. If an event -- God forbid -- happened, the market could swing pretty hard. But this uncertainty doesn't create more activity; it (depresses) activity because no one wants to do anything. Things kind of grind to a virtual halt."

In currency exchange, the dollar fell against the yen and moved little on the euro.

The euro bought $1.2030, relatively unchanged from $1.2029 late Friday, and the dollar bought ¥110.68, down from ¥112.14.  Top of page


-- from staff and wire reports.




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