|
Bonds rally on tame ECI
|
 |
October 28, 1999: 3:08 p.m. ET
Evidence of strong growth, low inflation helps spur biggest rally in a month
|
NEW YORK (CNNfn) - U.S. government bonds staged their biggest one-day rally in a month Thursday as investors took reassurance from two reports showing wages and costs remain subdued and inflation poses little threat.
At around 3 p.m. ET the bellwether 30-year Treasury bond rose 1-1/32 points, its biggest one-day gain in a month. The yield, which moves in the opposite direction of the price, slid to 6.24 percent from 6.32 percent on Wednesday, its biggest one-day drop since Sept. 30. The yield has fallen 15 basis points since Monday, when it stood at 6.40 percent. A basis point is 1/100 of a percentage point.
"Growth is stronger, but inflation is less, so it's still that great combination of strong economic growth with even less inflation than expected that's helping bonds," said Stuart Hoffman, chief economist at PNC Bank in New York.
Bonds rallied in the morning after the Labor Department said its employment cost index, a closely watched measure of wage and benefit costs, advanced 0.8 percent in the third quarter, less than the 0.9 percent analysts had expected.
At the same time, the Commerce Department said its gross domestic product price deflator, another inflation measure, rose 0.9 percent, less than the 1.2 percent analysts had expected and the slowest pace since the first quarter of 1998. Overall, GDP rose 4.8 percent between July and September, slightly more than the 4.7 percent analysts had predicted.
Those numbers were enough to convince investors that inflation poses significantly less of a threat than previously thought. Inflation erodes bonds' fixed principal and interest payments. The numbers also bolstered optimism among investors that the Federal Reserve may hold off raising interest rates when the central bank's policy makers meet in mid-November.
"The New Era lives," said John Ryding, senior economist with Bear Stearns. The odds of a rate hike on Nov. 16 have diminished," though an increase can't be completely ruled out, he said.
Indeed, most analysts and economists are still of the opinion that Fed officials will raise rates one more time at their policy meeting next month in an effort to retrace the three rate cuts they implemented last year to counter a series of global financial shocks.
"It's quite probable that the Fed will follow through with another 25 basis points (rate increase), but the market would tend to view that as the last one," Richard Hoey chief economist of Dreyfus Corp., told CNNfn.
The Fed raised rates twice over the summer in a bid to pre-empt inflation and slow economic growth. It left rates unchanged at its Oct. 5 policy meeting though fired a warning shot to financial markets by indicating it is leaning toward raising them again in the future.
Dollar benefits from data
The strong-growth-low-inflation data also brought strength to the U.S. dollar, lifting the currency higher against the yen. But the dollar retraced an early rally against the euro, finishing nearly unchanged against the Old Continent's single currency.
The U.S. currency climbed to 105.04 yen around 3 p.m. ET Thursday from 104.29 yen late Wednesday. The greenback eased slightly to 1.0524 dollars per euro from Wednesday's 1.0516.
Earlier in the day the dollar had rallied to near four-week highs against the euro, helped by the market-friendly economic reports that helped boost the values of most U.S. assets. But the greenback reversed its course when market players determined the gains to have been overdone.
-- from staff and wire reports
|
|
|
|
|
 |
|
