|
Bonds look close to home
|
 |
January 28, 1999: 9:21 a.m. ET
Healthy U.S. data, Fed speech drive Treasurys lower; dollar gains ground
|
NEW YORK (CNNfn) - U.S. Treasury bond prices dipped Thursday as traders focused on comments about Social Security from Federal Reserve chairman Alan Greenspan and a plethora of domestic economic data.
The benchmark 30-year Treasury bond was down 13/32 at 101-14/32 by 9:00 a.m. ET. The long bond's yield rose to 5.15 percent.
The new issue of two-year notes also slipped in the first morning of trading, down 6/32 at 99-27/32 to yield 4.58 percent.
Traders said the bond market was nearly dormant, with investors in a cautious mood while they digested Greenspan's testimony.
The main thrust of Greenspan's remarks, made before the Senate Budget Committee, concerned President Clinton's proposal to invest the federal budget surplus in the stock market.
Not only did the Fed chief question whether federal stock funds could remain insulated from political maneuvering, he also took a dim view of the government's ability to directly interact with the stock market without destabilizing it.
"Investing a portion of the Social Security trust fund assets in equities, as the administration and others have proposed, would arguably put at risk the efficiency of our capital markets and thus, our economy," he said.
Economy, full speed ahead
Bond traders were also digesting a barrage of domestic economic data released concurrently with Greenspan's speech.
The Labor Department issued the fourth-quarter Employment Cost Index (ECI) and weekly jobless claims data, which together showed that the economy is still surging ahead without much sign of wage inflation.
The ECI, an indicator of the total cost of labor, slowed its increase to climb only 0.7 percent in the quarter, down from a 1 percent increase last quarter.
However, jobless claims, an indicator of tightness in the labor market, fell to 301,000 from 316,000, revealing a lower short-term U.S. unemployment rate.
Economists had forecast slightly more inflationary results for both sets of data.
Although a rumor had earlier circulated among bond traders that the Labor Department's Web site had accidentally released the ECI ahead of schedule, government officials denied the story.
In any case, the rumor claimed that the "advance ECI" had risen at a much higher rate than in the previous quarter, rather than the slowing portrayed by the actual data.
Meanwhile, the bond market also dissected a release of durable goods orders for December that indicated new vigor ahead for the manufacturing sector.
Dollar on the rebound
All of the indicators of economic growth without appreciable inflation gave a boost to the dollar, which climbed above the 116-yen level to trade at 116.03 yen, up from its previous close of 115.59.
The U.S. currency also gained ground from the euro, testing new all-time highs as the European currency sank to $1.1394 from the previous close of $1.1445.
Currency traders said Greenspan's refusal to discuss U.S. monetary policy was a good sign for U.S. interest rates because "no news is good news."
Many economists now predict a pan-European interest rate cut in the near future, while the U.S. prime rate is likely to remain firm, buoying the dollar against the euro. 
|
|
|
|
|
 |
|
