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Glacial trading for bonds
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March 15, 1999: 3:21 p.m. ET
Low volume magnifies weight of single large Treasury buy; dollar gets stuck
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NEW YORK (CNNfn) - A lonely bond bull gave sagging Treasury prices a lift Monday afternoon, but the otherwise sullen market climate did little to help investors build a more comprehensive rally out of those gains.
Shortly before 3:00 p.m. ET, benchmark 30-year Treasury bonds jumped 9/32 of a point in price to 96-8/32, driving the yield down to 5.50 percent.
However, traders said the jump was almost exclusively the work of a single speculative buyer.
In addition, they noted that the upturn was not only isolated but exaggerated by otherwise extremely low market activity. Morning trading volume was a low $20 billion, 52 percent of normal, and Wall Street's assault on record blue-chip levels, combined with poor weather in New York, looked almost certain to continue that trend.
Instead, the increasingly conservative bond market found little external news to give it direction, leading some analysts to avoid Treasury debt altogether.
"We have reallocated out of bonds," said Alan Kral, portfolio manager at Trevor Stewart Burton & Jacobsen. "We got a little bit nervous back in December. However, now that bond yields have gotten back to where they are and stock price are where they are, I think you're going to take a real look at bonds and maybe take some money off the table."
The afternoon's weekly auction of short-term Treasury debt provided an encouraging sign of demand for bonds, but the buying interest was technical at best. The government received more than four times as many bids as it had bonds to sell in its $15 billion auction of three- and six-month bills.
Looking toward CPI, Greenspan
The rest of the week looks marginally more exciting for the Treasury market. Tuesday, Federal Reserve Chairman Alan Greenspan is set to talk about the agricultural sector, while the February consumer price index (CPI) is due Friday.
Although Greenspan's comments are unlikely to have much direct bearing on interest rate policy, financial markets -- and the Treasury market in particular -- have attributed oracular significance to even the slightest of the Fed chief's public appearances.
As for the CPI, economists expect the key indicator of inflationary pressure to remain in line with last month's figures, up a flat 0.1 percent.
"Notwithstanding the fact that the . . . CPI may look scary because of higher oil prices over the next few months, the key will be what the core numbers do," said David Rosenberg, senior economist at Nesbitt Burns. "And I'm still expecting that they'll be benign."
Dollar stuck in a lull
The dollar, meanwhile, remained weaker against other global currencies, regaining only a bit of its overnight losses throughout the day.
By 3:00 p.m. ET, the dollar was still down more than a full yen at 117.66 yen, off its lows but still near its worst level since early in its recent upward career.
Traders attributed the retreat to the annual yen repatriation season, in which Japanese investors scramble to park their money in yen-denominated securities ahead of the Tokyo fiscal new year April 1.
The season traditionally spurs yen buying, depressing the dollar and other global currencies.
However, this year in particular has seen active official Japanese interest in a relatively strong dollar. A soaring yen tends to hurt the Japanese stock market by knocking overseas profits at the country's massive exporters like Hitachi (HIT) and Sony (SNE).
The dollar's downward recalcitrance has led to fresh speculation that the Bank of Japan may be forced to sell yen in order to keep currency markets locked in a comfortable range.
Traders estimate this range at between 115 and 120 yen to the dollar.
The flight to yen also pushed the euro down to month lows against the Japanese currency, but the European unit remained steady versus the dollar.
By 3:00 p.m. ET, the euro was stable at $1.0932, significantly firmer than its previous close of $1.09 but still almost completely unchanged on the day.
Lingering euphoria over the resignation of controversial German Finance Minister Oskar Lafontaine was giving the euro a much-needed lift, traders said, allowing the currency to put a brave face on next Thursday's Ifo survey of German business conditions.
The Ifo is a key indicator of the health of Europe's biggest economy. Economists expect the February figures to show that Germany's business climate is still falling. 
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