|
Bonds gain on tame PPI
|
 |
January 13, 2000: 3:53 p.m. ET
Benign inflation news boosts Treasurys; investors await Greenspan, CPI
By Staff Writer Jill Bebar
|
NEW YORK (CNNfn) - Treasury bonds ended sharply higher Thursday as producer price data suggesting inflation remained in check calmed investors' fears of the Federal Reserve rising interest rates aggressively in the near-term.
"We didn't get any smoking gun numbers this morning to add higher levels of fears of higher rates," said Mike McGlone, market analyst at Aubrey G. Lanston.
The producer price index, a measure of inflation at the wholesale level, rose 0.3 percent in December, according to the Labor Department, in line with analysts' expectations.
Just after 3:15 p.m. ET, the price of the benchmark 30-year bond rose 23/32 to 93-7/32. Its yield, which moves inversely to its price, fell to 6.64 percent from 6.70 percent Wednesday.
Analysts noted the market had been weak going into the release of the data. On Wednesday, the yield was up as high as 6.71 percent, its highest level since July 2, 1997.
Market participants already expect the central bank to hike rates by at least a quarter of a percentage point at its next meeting Feb. 1 and 2. But many expected a more aggressive policy stance from the central bank, which is concerned about the tight labor market and the strong economy.
The benign PPI allayed some rate jitters. "The market is starting to think maybe 50 basis points (one-half a percentage point) could be enough for the time being," said Donald Galante, head of Treasury trading at Fuji Securities.
"There is clearly a shift in sentiment. The market had already priced in too much bad news," Lanston's McGlone added.
Ted Giuliano, chief investment officer of fixed income at Neuberger & Berman, told CNNfn he expects the Fed to hike rates at a more gradual pace. (173K WAV) (173K AIFF)
Supply to be reduced
Also contributing to gains was an announcement of regulations for the U.S. Treasury debt buy-back program. Treasury Secretary Lawrence Summers Thursday said the Treasury will buy back up to $30 billion of government debt this year. Analysts said the program, announced last year, is beneficial to the bond market by reducing supply.
Bond market participants largely ignored robust December retail sales data. The report showed strong holiday sales across the board, up at a 1.2 percent pace, the Commerce Department said. The number was the largest gain in four months and greater than analysts' forecasts of a 0.9 percent gain.
Charles Reinhard, chief market strategist at ABN Amro, said he was not concerned with the strength in the retail sales report. "Although the economy grew briskly, it is not leading to inflation pressure one has to worry about," he said.
Focus now on Greenspan, CPI
With PPI and retail sales out of the way, investors await Fed Chairman Alan Greenspan's speech scheduled this evening and Friday's consumer price index (CPI) report.
Greenspan's much-anticipated speech on technology and the economy is his first speaking engagement this year, and market participants will listen closely for any clues about upcoming monetary policy.
Greenspan's speech follows a spate of speaking engagements by Fed officials this week. Analysts said Fed Governor Edward Gramlich's comments Thursday were considered positive, noting there was no obvious evidence of accelerating inflation in the U.S. economy.
Earlier in the week, both Chicago Fed president Michael Moskow and Richmond, Va., Fed president J. Alfred Broaddus reiterated the Fed chief's view that the central bank must continue to act pre-emptively in order to contain inflation.
Dollar rises
The dollar rose against the major currencies Thursday, trading at the higher end of its recent ranges against both the euro and the Japanese yen.
Just after 3:15 p.m. ET, the dollar changed hands at 106.14 yen, up from 105.72 late Wednesday, a 0.42 percent gain in the dollar's value.
The euro fell to $1.0257 from $1.0310 Wednesday, a 0.53 percent gain in the dollar's value. 
|
|
|
|
|
 |
|
