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U.S. bonds, dollar rise
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July 21, 1998: 5:33 p.m. ET
Greenspan sends the markets down, then up; warns of inflation dangers
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NEW YORK (CNNfn) - U.S. Treasury bonds ended a seesaw session higher and the dollar rose Tuesday after investors in both markets weighed the latest comments on the economy by Federal Reserve Chairman Alan Greenspan.
The bond market started the day higher, then dipped when news came out that housing starts in June rose more than had been expected.
Hopes that Greenspan's Humphrey-Hawkins testimony on the economy will be market-friendly helped the market recover. But the Fed chief soon caused another stumble, when he told the Senate Banking Committee that higher interest rates may be warranted if the U.S. economy does not slow down by itself.
His comments briefly sent the market into negative territory. But buyers emerged at the day's lows, encouraged by gains in the dollar, and a movement of money out of the stock market after Greenspan's comments. Also helping the market bounce bask was a belief that even though the Fed's next interest rate move will be a tightening, such a move is not to come for a while.
In the end, the benchmark 30-year Treasury bond rose 23/32 of a point in price, lowering the yield to 5.66 percent.
Meanwhile, the hint of higher interest rates in the future helped the dollar rise against the German mark and the Japanese yen.
The greenback already had posted gains as investors watched Japan's search for a new prime minister. According to Japanese press reports, Foreign Minister Keizo Obuchi has emerged as the front-runner in the race to lead the government, results of which are to be announced Friday. But currency markets seem to have a preference for his rival, ex-Chief Cabinet Secretary Seiroku Kajiyama, who is widely believed to be more likely to introduce speedy economic reforms.
The dollar closed at 140.30 yen, up from 139.65 at the start of U.S. trading.
The U.S. currency also climbed higher against the German mark as Russia received a smaller first portion of its IMF-backed aid package than it had hoped for. The Russian parliament's failed to pass all austerity measures it needed to lock in the $22.6 billion aid deal, causing the International Monetary Fund to reduce the size of the first tranche of the loan to $4.8 billion from $5.6 billion.
The dollar closed at 1.7870 marks, up slightly from 1.7860 at the open. 
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