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Still no joy in Bond-ville
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November 6, 1998: 4:21 p.m. ET
Treasurys dip again as stocks rally; Fed rate cut worries, poor bond sale linger
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NEW YORK (CNNfn) - U.S. Treasurys sank Friday as world market jitters continued to wane, raising doubts about the prospect of a Federal Reserve interest rate cut.
At around 4 p.m. ET, the Treasury's 30-year benchmark bond was down 1-2/32 in price at 98-2/32, as the yield, which moves inversely, climbed to 5.38 percent.
As Wall Street further distances itself from severe losses of August and September, the bond market is losing its appeal as a haven for wary investors, to the benefit of stocks. The Dow Jones industrials rose almost 60 points Friday.
"Confidence is rising and risk-aversion is declining," William Sullivan, money market strategist with Morgan Stanley Dean Witter, said. "Now we are seeing a huge flight from quality. That reflects the healing process and an improvement in investor psychology."
A mixed economic picture in recent weeks has raised doubts whether a Fed rate cut will come Nov. 17, when its policy arm is set to meet.
The bond market didn't rally much Friday following otherwise bond-friendly words from a top Fed official.
Fed Governor Edward Gramlich expressed concern about job creation and the impact of Asia's crisis on manufacturing, but said a "soft landing" is still possible for the U.S. economy.
That came a day after Fed chief Alan Greenspan said Thursday that signs are emerging the recent credit crunch and global market jitters had begun to ebb.
Indeed, the corporate bond market has showed signs of rebounding, hinting that the credit crunch monetary policy makers feared may be less of a threat.
"The new issue calendar had dried up for all kinds of issuers," said Sullivan. "But now, the corporate calendar is building again."
Analysts still were gaping at what was variously termed a "dismal" and "abysmal" auction of U.S. government notes and bonds this week. The $38 billion auction drew some of the lowest demand in years, they said, due to the relative high cost of Treasurys.
Analysts said the sale of nearly $1 billion in 10-year notes from an investment bank -- said to be Morgan Stanley -- weighed on Treasurys overall in the morning.
The dollar plods higher
In the currency market, the U.S. dollar continued its climb against the Japanese yen, to fetch 119.06 yen, up 1.14 yen.
"What we are seeing is a reassertion of fundamentals, and the dollar is coming back," said Michael Rosenberg, currency analyst with Merrill Lynch.
"We had a rising dollar against the yen, temporary collapse that had no fundamental basis, and then we stabilized and will move to new highs," Rosenberg added.
Meanwhile, the dollar also gained ground against the German mark thanks to increasing attractiveness of U.S. bonds compared to the German counterparts, Rosenberg said.
There are still few signs the German Bundesbank will succumb to growing political pressure and seek a cut in interest rates there. The Buba wants to hold its line before the launch of the euro currency next year.
The dollar was up 1.27 pfennig to fetch 1.6732 marks late Friday. 
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