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Stocks knock bonds lower
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March 26, 1999: 3:56 p.m. ET
Wall Street's fighting spirit shames Treasurys away from dollar rebound
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NEW YORK (CNNfn) - Bond prices turned away from a surging dollar in late Friday trading, losing heart after Wall Street put up a convincing fight against selling pressure.
By 3:00 a.m. ET, the benchmark 30-year Treasury bond had given up its strong morning gains, instead falling 8/32 of a point in price to 94-30/32 as the yield climbed ominously up to 5.60 percent.
Traders said the bond market had lost its nerve after stocks partially succeeded in fending off their morning slump to hover only marginally in the red.
Wall Street's struggle spurred some investors to take a second look at stocks, driving money back out of the already-impoverished bond market, said Dan Seto, senior economist at Nikko Securities.
Oil, FOMC subdue activity
Meanwhile, investors remaining in the bond market preferred to watch and wait, sidelined ahead of next Tuesday's meeting of the Federal Open Markets Committee (FOMC), which will set U.S. interest-rate policy.
Although fears that the FOMC will raise rates have waned in recent weeks, wary investors remained unwilling to risk exposure to any surprises Friday.
Some also pointed to an ominous surge in oil futures as a possible harbinger of inflationary pressures to come. World oil prices previously lodged a cool reaction to the latest round of OPEC supply cuts, raising the possibility that crude could keep wallowing near 22-year lows.
However, FOMC chief Alan Greenspan and others have warned financial markets in the past that low prices cannot continue forever, and that in time, reviving commodity prices will spark the rebirth of inflationary pressures.
Looking for havens
A trickle of capital flowing into bonds in a safe-haven bid offered the Treasury market some limited support, traders said.
In the wake of continuing hostilities in the Balkans between NATO and Yugoslavia, many investors were reluctant to expose themselves to any unexpected weekend risks, choosing instead to lock their funds in Treasury debt for the duration.
The dollar also saw the upside of this safety bid, climbing to a two-week high against the yen and keeping the euro near its all-time lows.
By 3:00 p.m. ET, the dollar leapt more than 2 full yen to 120.30 yen, crashing through the psychological 120-yen barrier that traders had earlier worried would be impenetrable.
Repatriation on hold for war
Traders said the Balkan-spawned flight to safety was counteracting the annual torrent of Japanese funds flowing back into yen-denominated securities ahead of the fiscal new year April 1.
Japanese investors traditionally pull their money out of overseas markets throughout the month of March, parking it at home for bookkeeping purposes.
A relatively lackluster advance in the Tokyo stock market also contributed to the dollar's sudden spirit. Tokyo blue-chip equities lagged a much more robust rally on Wall Street, inspiring global traders to curb their own recent flight to Japanese markets.
In the long term, the outlook for Japan's ailing economy remains murky, and investors will have to confront the big picture after the transitory repatriation season winds down.
Meanwhile, the euro also yielded right-of-way to the resurgent dollar, tumbling to test new lifetime lows amid concerns that the military struggle in Yugoslavia could widen political tensions among members of the European Union.
The euro sank to $1.0765 in late U.S. trading, well off its previous close of $1.0834 but still off a lifetime trough of $1.0715 hit in mid-day trading. 
-- by staff writer Robert Scott Martin
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