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Dollar, bond extend gains
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February 17, 1999: 3:29 p.m. ET
Greenback hits 119 yen while sliding stocks push Treasury prices higher
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NEW YORK (CNNfn) - U.S. Treasury prices saw the bright side of Wall Street's stormy weather Wednesday, renewing their advance in late trading as wary stock investors scampered back to the safety of bonds.
By 3:00 p.m. ET, the benchmark 30-year Treasury bond had gained 14/32 of a point at 98-31/32, while the yield slid to 5.31 percent.
The low end of the yield curve continued in its own steadier path, with two-year notes ignoring the long bond's fluctuations to trade up 1/32 at 99-9/32, yielding 4.88 percent.
Traders said the morning's round of profit taking had revitalized the Treasury market, allowing investors to ignore indifferent housing and industrial data.
Instead, analysts said bearish gyrations in the U.S. stock market contributed to the optimistic tone that liberated bonds from their recent gloom Tuesday.
"The economic numbers didn't really have an affect on the (bond) market," said Josh Stiles, senior bond strategist at I.D.E.A. "Housing starts were strong, but . . . the market was already reaching support in the softer stock market and softer manufacturing numbers."
News that influential Salomon Smith Barney strategist John Manley had become slightly more bearish on bonds did little to knock Treasury sentiment.
Manley reduced the bond weighting in his model portfolio to 35 percent from 40 percent, raising the cash weighting to 10 percent and leaving stocks to account for 55 percent.
"We don't see the huge short-term upside to the bond market that might have existed before," he said. "It's just a question of not really seeing the big upside."
He said he expects U.S. bond yields to rise -- perhaps to 5.60 percent -- until Japan repairs its beleaguered debt market, stemming recent repatriation of funds from Treasurys to yen-denominated securities.
"I actually think the Japanese are having an influence on our rates," he said. "Probably 20-25 basis points in the rise (in 30-year Treasury yields) is fundamentally attributable to the drain in capital. This will probably go on through the end of March."
Dollar hits 119 yen; bonds rejoice
A firm dollar was also a central factor in the bond market's new optimism. After numerous attempts during the day, the U.S. currency had scaled the 119-yen level again at 3:00 p.m. ET, trading at 119.04 yen from its previous close of 118.72.
Euro trading was subdued ahead of Thursday's meeting of the European Common Bank, but the European currency did manage to stake out some narrow gains to $1.124 from its previous close of $1.1203.
Currency traders said the greenback was reacting to the comparatively robust economic data, while anti-currency-band comments from U.S. Treasury Secretary Robert Rubin had little impact on the market. Rubin said he will oppose the institution of currency bands at a weekend meeting of the Group of Seven industrialized nations.
Ahead, the bond market will pay close attention to the release of the January producer and consumer price indexes in order to gauge inflationary pressures that can in turn depress demand for bonds and other fixed-income securities.
Economists predict that Thursday's producer price index will return to a milder rate of increase after tobacco price increases skewed last month's data.
Traders also said U.S. financial markets will look ahead to Tuesday, when Federal Reserve Chairman Alan Greenspan is set to deliver the semi-annual Humphrey-Hawkins report on U.S. policy. 
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