|
Bonds edgy but up
|
 |
November 17, 1998: 9:32 a.m. ET
FOMC meeting paramount; Moody's ratings cut of Japan lifts dollar briefly
|
NEW YORK (CNNfn) - U.S. Treasury prices moved higher early Tuesday, but bond traders were walking on eggshells ahead of an announcement on interest rate policy from the Federal Reserve.
A downgrade of Japan by ratings agency Moody's, while largely expected, lopped off the attractiveness of Tokyo stocks and added a boost to the lure of Treasurys - particularly shorter-term bills - as an alternative.
Around 9 a.m. ET, the 30-year benchmark issue was up 7/32 in price at 99-20/32 as the yield, which moves in the opposite direction, fell to 5.27 percent.
Foremost in the minds of traders was the meeting of Federal Open Market Committee policy makers and an expected word from the panel around 2:15 p.m. ET. Trading volumes were expected to be light prior to that.
Thirteen of 15 economists surveyed by CNNfn said they expect the Fed to cut rates. While stocks have climbed since two rate cuts over the past two months, the Fed may still be concerned about whether the U.S. economy can stave off a credit crunch.
"I think there is a very good possibility, 80 percent or so, that the Fed's going to cut rates today," said Brian Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson in Chicago.
"On the real economy side, it has been a mixed bag ... [and] manufacturing has been very weak over the past six months," he said.
Bond market trading volume has been lackluster over the past several months even though the Fed lowered borrowing costs, and a further injection of stimulus may be needed.
On Tuesday, with the Fed their focus, bond traders brushed off a morning report showing the consumer price index edged up a higher-than-expected 0.2 percent on an annualized basis in October.
While a rate cut would likely help bonds, it would equally be expected to chip away at the U.S. dollar by making American securities less attractive.
Dominating early currency trading however was Moody's downgrade of Japan's ratings as that country prepares to embark on a massive $196 billion stimulus package for its ailing economy.
The dollar spiked as high as 122 to the Japanese yen following that news overnight, but was recently quoted at 120.73.
The strong dollar's impact on emerging market economies reportedly has been the source of some concern for Fed officials. When markets overseas can't buy American goods for lack of purchasing power, that threatens U.S. growth.
The dollar was down slightly at 1.6665 German marks. Bundesbank officials have been quite strident in their insistence they will not cut interest rates ahead of the launch of the euro currency next year.
|
|
|
|
|
 |
|
