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Bonds soar on stock slump
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October 1, 1998: 9:24 a.m. ET
Treasury sets new records as world stocks ache, hedge fund woes lurk
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NEW YORK (CNNfn) - The steamroller that the U.S. Treasury bond has become was moving forward again Thursday as investors worldwide remained skittish about stocks.
At around 9 a.m. ET Thursday, the benchmark 30-year Treasury issue was up 28/32 in price at 109-3/32, with the yield, which moves inversely, plunging to 4.90 percent, a new record low.
World stock markets reeled again as the fourth quarter got under way, sparked in part by Japan's Nikkei index. The Nikkei fell to a 12-year low after the Tankan survey showed business confidence in Japan sank far below economists' expectations.
Weakness at a key European bank and spillover from the Japanese slump triggered a sell-off of as much as 7 percent at the primary European indexes.
Wall Street stocks, based on trading in S&PFutures on the Globex trading system, seemed set to open sharply lower Thursday.
Also weighing on stock markets was a dire International Monetary Fund report predicting world economic growth this year will be about half that of 1997. The IMF recommended that nations that make up 90 percent of the world's total economic output to lower interest rates
Meanwhile, jitters were rife about the fallout from hedge funds, such as recently-rescued Long-Term Capital Management, whose exposure to risky investments was boosting bonds.
Federal Reserve Chairman Alan Greenspan, fresh from what some Wall Street analysts said was a disappointing quarter-point cut in short-term interest rates, will be on Capitol Hill Thursday to discuss hedge funds.
In the aftermath of the LTCM debacle, the House Banking Committee is holding hearings that could lead to tighter regulation of the risky investment vehicles.
On the U.S. economic front, there was a sharper-than-expected drop in initial jobless claims last week, hinting that global economic woes have yet to strike the labor market in the United States.
Investors also will be on watch for a 10 a.m. reading on purchasing at the wholesale level, a key weathervane of U.S. industrial activity.
Mark soars, yen holds steady
In the currency market, the U.S. dollar careened to a 19-month low against the German mark as speculation mounted that the Federal Reserve may have to cut interest rates again soon to forestall financial global market meltdown.
Germany, however, has made no bones about its reluctance to cut interest rates ahead of the planned launch of the euro currency in Europe next year.
Higher interest rates in Germany tend to make mark-denominated assets more attractive than U.S. securities. And that led the dollar to sink 1.74 pfennigs to 1.6516 against the mark.
The dollar was virtually flat against the Japanese yen in the heels of the Tankan study, fetching 135.82 yen.
Some currency analysts are hopeful U.S. Treasury Secretary Robert Rubin, who also will testify on Capitol Hill Thursday, will make further comments about the weak yen ahead of this weekend's Group of Seven summit meeting of industrialized nations.
Some analysts have speculated the G-7 summit will be the forum for a coordinated effort to prop up the Japanese currency.
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