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Treasurys flee competition
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April 13, 1999: 3:18 p.m. ET
Euro tumbles on Balkan fears, but flight to quality fails to help the bond market
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NEW YORK (CNNfn) - Investors made room in their portfolios for a flood of corporate debt Tuesday, conspiring with the morning's ambivalent economic data to push Treasury prices into a deep slide.
By 3:00 a.m. ET, the benchmark 30-year Treasury bond fell 22/32 of a point in price to 96-12/32, driving the yield up to 5.49 percent.
A "heavy day" of corporate and agency debt announcements was one of the chief factors souring the Treasury market, said Michael Cloherty, bond strategist at Credit Suisse First Boston. He pointed to Freddie Mac's (FRE) float of $3 billion in fresh debt due to mature in 2004, as well as a $3 billion pricing from oil giant Conoco (COC) expected sometime this week.
In addition, billion-dollar floats from the Inter-American Development Bank and Associates Corp. of North America on Tuesday did nothing to encourage investors to take another look at Treasury bond.
Traders said the bond market was not in a condition to absorb the additional supply, having struggled throughout the quarter to digest February's infusion of $35 billion in fresh Treasury debt.
Silver lining, gray cloud
Bonds got minimal encouragement from economic data released Tuesday, which showed that while inflation remains in deep hibernation, the economy could still be growing faster than investors would like to think.
According to the Labor Department, U.S. consumer prices climbed only 0.2 percent in March, or 0.1 percent excluding the volatile energy and food sectors. Economists and investors alike had expected a more substantial increase of 0.3 percent overall and 0.2 percent for the core rate.
Meanwhile, an upward revision to February's retail sales statistics, to 1.7 percent growth from 0.9 percent, played upon the bond market's fear that the economy could break into a period of breakaway growth, almost inevitably generating inflation or forcing the Federal Reserve to curb the expansion with higher interest rates.
Cloherty of CS First Boston said such revisions to retail data could presage upward revisions to gross domestic product data, indicating unexpected explosive growth in the U.S. economy.
Balkan jitters sink euro
Treasury debt at the low-maturity end remained firm, getting a slight boost from investors fleeing the growing risk of ground conflict in the Balkans, particularly reports of Yugoslav troops briefly crossing into Albania to occupy a border town. One-year notes were flat at 101-29/32, yielding 4.81 percent.
Concerns over NATO's military engagement against Yugoslavia has spurred a subdued but persistent flight of capital into short-end Treasury debt, while leaving the long bond and other high-maturity paper largely unaffected.
Albania is the ethnic homeland of most of the population of the breakaway Yugoslav province of Kosovo, and many Kosovar rebels and civilian refugees alike have crossed the border.
The threat of deepening chaos on the edges of the European Union provided the final nail in the coffin of the euro's fading interest-rate euphoria, driving the European currency down to $1.0772 from its previous close of $1.0804.
The European Central Bank voted to cut continental interest rates last week, spurring euro-buying in relief as investors bet that the rate move could re-ignite Europe's sluggish economy.
The yen remained firm against the dollar, lifted by a renewed flood of overseas traders buying yen in order to buy into the Japanese stock market's stunning rebound. With U.S. stocks trading in more uncertain territory, the dollar was unable to stem the flow, slipping to 119.83 yen from its previous close of 120.35. 
-- by staff writer Robert Scott Martin
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