|
Bond builds, dollar dips
|
 |
March 18, 1999: 3:38 p.m. ET
Economic data put fears of rate hike to rest, but Japan recovery spurs yen surge
|
NEW YORK (CNNfn) - Treasury bonds built on their morning gains Thursday afternoon, drifting higher in a cloud of encouraging economic data and rarefied trading volume.
By 3:00 p.m. ET, the benchmark 30-year Treasury bond was up 11/32 of a point in price at 96-21/32, keeping the yield down at 5.47 percent. Gains were clustered around the high end of the maturity curve, with two-year notes up a scant 1/32 to yield 4.97 percent, but volume was light at only 60 percent of normal.
The bond market had gotten a welcome shot of enthusiasm from the day's full plate of economic reports, said Joshua Feinman, chief global markets strategist at Bankers Trust.
In particular, Feinman said that the record February trade deficit led traders to hope for a "less buoyant" gross domestic product report for the first quarter, indicating that the boisterous U.S. economy may finally be slowing its growth cycle.
Brian Fabbri, Paribas economist, agreed, noting that the high trade imbalance would make it difficult for domestic demand to keep the economy running at present levels on its own.
"It's literally going to contract GDP growth in this current quarter," he said. "Domestic demand . . . probably would be growing over 5 percent this quarter, another really big number. But because the trade numbers are so large, they'll probably take maybe 2 percent away from it and we'll have a GDP number of 3, 3-1/4 percent or so."
Oil fails to dent CPI
Economists also said the morning's release of February consumer price index (CPI) figures was good for bonds, giving the market additional confirmation that while inflation may not be dead, it will remain in hibernation in the near term.
Even rising oil prices were unable to break the tone of optimism, said Paribas' Fabbri, as the CPI is unlikely to reflect the changes soon.
"It will take 3 or 4 months before it probably gets to the CPI assuming, of course, that the discipline in OPEC holds for that long and we wind up with $15 per barrel oil prices," he said.
Dormant inflation, in turn, leads financial markets to put aside fears of higher interest rates ahead. Few economists now see the Federal Open Market Committee (FOMC) acting to change U.S. interest rate policy when it meets March 30.
"The economy is doing fine," said Neal Soss, chief economist at CS First Boston. "We're at the lowest unemployment rates in a generation. Inflation is hard to find. There's just aren't the kinds of problems that would induce to you take new medicine. So if the medicine at the moment is a 4-3/4 percent Fed funds rate, keep it there."
Dollar struggles in retreat
Dollar bulls, meanwhile, got little lift from the news that inflation remains in check. Instead, the news only spurred the recent flood of capital into yen and yen-denominated securities, a trend fueled not only by Japanese investors straightening their books ahead of their fiscal new year but also by U.S. traders looking to pick up Tokyo bargains.
Despite the Tokyo stock market's 550-point fall Wednesday, Japanese stocks are still up a staggering 13 percent this week. At least part of this rally is due to large financial institutions and other global investors betting that Japan's economic troubles have finally bottomed out and brighter prospects await.
Combined with the annual repatriation of Japanese capital ahead of the April 1 fiscal new year, the result was not encouraging for the dollar. By 3:00 p.m. ET, the greenback had left the 118-yen level behind, sliding to 117.43 yen from its previous close of 118.27.
Against the euro, the dollar finally put a day of choppy trading behind it to hold onto some fragile gains. The euro slid to $1.0975, giving up three-week highs touched overnight, as profit-taking and lingering concern over a weak German business survey finally overcame confidence in the European economy. 
|
|
|
|
|
 |
|
