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Retail sales push bond lower
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November 13, 1998: 9:38 a.m. ET
Treasurys slip on signs of U.S. economic might before Fed meeting; Iraq lurks
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NEW YORK (CNNfn) - Bond prices staggered Friday as a hearty U.S. economic picture, coming days before a key meeting of monetary policy makers, diverted the attention of traders from Middle East tensions.
At around 9 a.m. ET, the 30-year benchmark Treasury issue was down 12/32 in price at 99-18/32 as the yield, which moves in the opposite direction, rose to 5.27 percent.
Treasurys held firm overnight amid tension between the United Nations and Iraq over U.N. arms inspections and sanctions in that country. The threat of instability held a prop underneath bonds.
But a pair of U.S. economic reports rattled the bond market Friday morning. Retail sales rose 1 percent in October on an annualized basis in comparison to September, sharply higher than the 0.5 percent rise economists had expected. Strong auto sales powered the gains.
And the producer price index, a key weathervane of inflation, rose 0.2 percent last month on an annual basis from the September level. That, too, slightly outpaced forecasts.
Counteracting that, however, was a morning report by the Atlanta Federal Reserve Bank showing weak manufacturing activity in the Southeast.
Those reports will be important fodder for Federal Reserve policy makers as they meet Tuesday to discuss whether to cut short-term interest rates. During the past several weeks, analysts have been paring back expectations for a cut.
"The Fed funds [futures] contract is pricing in a 50-50 [percent] chance," said Rick Santelli, a bond trader with Sanwa Futures in Chicago. "The market seems to be unsure whether we are going to get an ease."
The Fed's open market committee is also expected to mull a rate cut at its scheduled meeting on Dec. 22.
A 10 a.m. report on consumer sentiment published by the University of Michigan could unsettle bond markets as well Friday.
Wall Street appeared headed for a higher open Friday, amid flat trading in Europe and a solid session in Tokyo. Bond prices have been moving in part as investors seek safer returns of Treasurys when stocks turn volatile.
Meanwhile, in the currency market, the U.S. dollar barely budged against the German mark and Japanese yen.
The yen rallied overnight on signs a planned economic stimulus package in Japan could be larger than first outlined. But the dollar kept its support amid the Middle East tensions.
The dollar was recently quoted up about a half-yen at 122.33 yen.
The German mark continued to edge down toward the key 1.70 to the dollar level, falling to a level of 1.6903 marks to the greenback.
Two keystones in the new "Euroland" common currency zone set for rollout next year, Germany and France, reported shrinking trade surpluses in part due to spill-over from Asia's recent economic crisis. 
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