NEW YORK (CNNfn) - Bond prices edged off their lows Tuesday afternoon, though overnight pronouncements by Japanese officials that they would halt outright purchases of Japanese government bonds continued to weigh on depressed U.S. Treasurys, exerting upward pressure on interest rates.
In mid-afternoon trading in New York, the 30-year benchmark Treasury bond was off 1-1/32 in price, pushing the yield - which moves inversely to price - up to 5.12 percent. Two-year notes fell 3/32 to yield 4.57 percent.
As many had predicted, the Federal Reserve's policy-making committee left the key overnight lending rate untouched at 4.75 percent at its last meeting of the year Tuesday.
Many analysts, however, feel the Central Bank may resort to further monetary easing sometime next year, as signs emerge in the U.S. of a widely-anticipated economic slowdown.
In the absence of any signal market-moving news in the United States Tuesday, and with Treasury activity very thin on meager volume of about $31 billion, analysts said the Japanese statements on government bonds took on a slightly exaggerated importance.
The Dow ended up 56 points Tuesday, at 9,045, according to preliminary figures, as investors continued to shun the safe-haven of debt for a resurgent stock market.
"There's just not enough going on here in our markets," said Bill Hornbarger, a bond analyst with A.G. Edwards in New York.
Hornbarger noted, however, that much of the price weakness witnessed occurred in overnight trade and was already in place when Treasury markets opened Tuesday.
Michelle Laughlin, a Treasury Market Strategist with Prudential Securities, said the Japanese situation had "set the tone" for bond markets overnight.
"A nagging concern for the market has been that we'd see Japan sell Treasurys to buy euros," Laughlin said, referring to the new common European currency set for launch on Jan. 1, 1999.
Laughlin also noted that Japan indicated it planned to issue 23 percent more debt to help fund a stimulus package. Such a move, coinciding with vows to stop buying government bonds, was not conducive to shoring up investor confidence in debt markets, she and others said.
Many investors, analysts said, appeared to be sitting on the sidelines, riding out the normally quiet end-of-year holiday season.
"Seasonally, we're moving into a negative time for Treasurys," Laughlin said, noting that many traders seemed "distracted" by the looming advent of the euro.
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