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Bonds rise on durables data
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October 27, 1999: 9:23 a.m. ET
Slowdown was greater than expected; dollar is mixed
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NEW YORK (CNNfn) - Treasury bonds rose Wednesday after a report showed orders for big- ticket items slowed at a greater-than-expected rate Wednesday, suggesting manufacturing has cooled modestly
Just before 9:10 a.m. ET, the price of the benchmark Treasury bond rose 21/32 to 97-8/2. Its yield, which moves inversely to the price, fell to 6.33 percent from 6.38 percent Tuesday.
Bonds, already higher overnight, extended their gains after the government said orders for durable good fell 1.3 percent in September, far more than the expected 0.4 percent decline.
The report suggests that the pace of manufacturing has begun to slow. Still, the gains in Treasurys were modest. With inflation fears looming ahead of Thursday's key economic data, the report doesn't change the view among analysts that inflation is rising and the economy is strengthening.
"We don't look at this number and say it's the end of manufacturing strength," said Josh Stiles, bond strategist at IDEA Global.com. "Still, it hasn't hurt the bond market,"
Bonds got support after Japan's central bank Wednesday agreed to accept Treasurys as collateral on bills as a temporary measure to cope with the Year 2000 problem.
Few expect much buying or selling ahead of Thursday, when the government releases its first reading on third-quarter gross domestic product and the employment cost index for the same period. Investors continue to fret that these key economic reports will show escalating inflation, which erodes the value of a bond's fixed income payments.
"The market remains very defensive ahead of these key data releases," William Sullivan, fixed income strategist at Morgan Stanley Dean Witter. said.
Analysts surveyed by Reuters expect the employment cost index, a gauge of wage inflation, to gain 0.9 percent. GDP is seen rising 4.4 percent, nearly tripling the 1.6 percent rate of economic expansion in the second quarter.
"'We could approach (a yield of) 6-1/2 percent (on the 30-year bond) if the employment cost index ends up on the high side," said John Lonski, senior economist at Moody's Investors Service.
The Fed, the nation's central bank, raised interest rates twice over the summer in a bid to pre-empt inflation and slow economic growth. But tighter credit hasn't appreciably slowed the economy. As such, many see the Fed hiking its main lending rate to 5.50 percent when it meets Nov. 16.
Ahead, the Treasury Department this afternoon will hold its monthly auction of two-year notes.
Dollar mixed
The dollar Wednesday was mixed against the major currencies
Just before 9:10 a.m. ET, the dollar slipped to 104.17 yen from 104.86 Tuesday, a 0.67 percent drop in the dollar's value.
The dollar, which fell as low as 103.71 yen last night, has been hurt by fears of U.S. stock weakness and optimism over Japan's recovery from recession.
Further, there's talk that the Japanese stimulus package will be larger than expected.
Still, analyst fear that a strengthening yen could hamper the nation's fragile economic recovery by making its exports tougher to sell.
Fears of yen strength helped lead to a major sell-off in Japanese stocks earlier Wednesday.
"Market expectations of a possible (Bank of Japan) intervention are resurfacing as dollar-yen dipped below 104 intraday," Donaldson Lufkin & Jenrette said in an e-mail to clients Wednesday.
Just before 9:10 a.m., ET, it cost $1.0549 to buy one euro, down from $1.0596 Tuesday, a 0.44 percent gains in the dollar's value.
The dollar's strength comes after the European Central Bank said M3, a measure of money supply, grew at an annual rate of 6.1 percent last month from 5.7 percent. 
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