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Bonds up before Fed meets
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November 16, 1999: 9:41 a.m. ET
Treasury yield flirts with 6.00% ahead of key meeting on rates
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NEW YORK (CNNfn) - Treasury bonds edged higher Tuesday in what traders say will be a range-bound trading session ahead of the Federal Reserve's afternoon decision on interest rates.
Just before 9:30 a.m. ET, the price of the benchmark 30-year Treasury bond rose 5/32 to 101-16/32. Its yield, which moves inversely to the price, fell to 6.01 percent from 6.02 percent.
The morning's moderate bond strength, said Josh Stiles, bond strategist at Global.IDEA.com, may reflect the belief the that Fed hiking its main lending rate to 5.50 percent would do little harm to the market.
"The view is that the market could withstand a 25 basis point rate hike," said Stiles, who predicts the Fed doing exactly that, while shifting its inclination on future rate hikes to neutral.
For analysts, the upcoming decision on interest rates is one of the toughest to call in recent memory.
"We would say it's even money," David Katz market strategist at Matrix Asset Advisors, said of the afternoon decision.
The day's only economic indicator had no apparent market effect. The government said U.S. industrial production rose 0.7 percent in October, more than double the 0.3 percent expected by analysts. Capacity utilization climbed to 80.7 percent, also above forecast.
Instead, the market is more focused on the Fed meeting's uncertain outcome.
The confusion over monetary policy comes as a series of economic data has painted a conflicting picture of inflation. Increases in wages and consumer prices have been tame to date, but the nation's labor market is getting tighter. Commodity prices are on the uptick.
Core producer prices rose last month. But productivity in the third quarter increased, suggesting business won't need to raise prices. Retail sales were flat.
The difficulty in forecasting the day's Fed move comes in contrast to October, when most analysts accurately anticipated the Fed leaving rates flat.
"Data released since the last meeting have not been sufficiently weak to dissuade a Fed prepared to firm from actually tightening policy," Donaldson Lufkin & Jenrette said in an email to clients.
The Fed, DLJ said, will not want to risk missing this opportunity to hike rates, calling Tuesday its last chance to tighten credit until February 2000.
"The next policy meeting takes place on December 21, precisely when the Fed will have to address potential Y2K liquidity issues," the investment bank said.
Tony Crescenzi, chief bond strategist at Miller Tabak & Co., also made the case against the Fed standing pat this afternoon
"If the Fed is to achieve its objective of slowing the economy, they must consider the risk that their inaction on rates could spur growth before the economy has had a chance to truly slow," said Crescenzi.
Dollar rises
The dollar moved higher against the yen but was little changed versus the euro Tuesday.
Just before 9:30 a.m., ET, the dollar rose to 105.85 yen from 104.85 Monday, a 0.97 percent gain in the dollar's value.
The weakness comes after two reports expressed optimism over Japan's economic health.
The Bank of Japan upgraded its assessment in a monthly report, saying the economy is now "starting to rise from the bottom." The Organization for Economic Cooperation and Development, meanwhile, said Japan has been in a cyclical recovery since the beginning of the year thanks to heavy doses of economic stimulus and renewed confidence.
Just before 9:30 a.m. ET, it cost $1.0337 to buy one euro, nearly unchanged from Tuesday's $1.0335.
The euro, which has lost about 10 percent of its value year-to-date, continue to stay depressed. As such, many analysts expect the currency to recover in the months ahead.
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