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Markets & Stocks
Bonds drift lower
March 27, 2000: 3:31 p.m. ET

Concerns of rising interest rates continue to weigh on prices; focus on OPEC
By Staff Writer Jill Bebar
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NEW YORK (CNNfn) - Treasury bonds edged lower Monday, continuing a trend that began Friday, as investors expressed concern about rising interest rates from the Federal Reserve in the near term.
    "It's premature to start talking about the Fed being done," said Bill Kirby, trader at Prudential Securities. "There's still too much (consumer) demand out there before they can call it quits."
    graphicWith trading volume relatively light, the 30-year bond yield hovered at or slightly below the 6 percent level throughout the session. Shortly before 3 p.m. ET, the bond fell 2/32 of a point to 103-17/32. Its yield, which moves inversely to its price, was unchanged from 5.99 percent Friday.
    Ten-year Treasury notes dropped 3/32 to 102-5/32, their yield rising to 6.20 percent from 6.19 percent Friday.
    Thursday's release of the Federal Open Market Committee (FOMC) minutes continued to pressure the market. Because a few members of the committee, the central bank's policy-making arm, pushed for a half-point rate hike, it raised the possibility of more aggressive action in the near-term than previously anticipated.
    "Traders and portfolio managers now need to adjust to expectations of either 50 basis points (one-half a point) in May or a larger series of 25 basis point (one-quarter point) hikes," said a portfolio manager at a U.S. investment bank. "It's hard to get optimistic."
    Amid continued strength in the economy, the Fed has increased short-term interest rates five times since June, each time by a quarter point. However, consumer spending remains strong, and there appear to be no signs of a slowdown. The belief is widespread the central bank will hike rates again by at least one-quarter point when it meets again May 16.
    Some strategists say there is a chance the Fed may even tighten prior to the May meeting if further economic data indicate a surge in economic strength. It is rare that the Fed makes changes to monetary policy between scheduled FOMC meetings.
    Prior to the release of FOMC minutes, Treasury bonds rallied as concerns about a reduction in supply underpinned prices. In late January, the U.S. Treasury announced plans to reduce the issuance of long-term debt by as much as $30 billion through a buyback program.
    In addition, the market was bolstered last week as investors reallocated money out of agency bonds to government securities. The "flight to quality" trades occurred after Treasury undersecretary Gary Gensler fueled speculation the government may take steps to reduce the perception that agency debt is fully backed by the faith and credit of the U.S. government.
    
Focus on OPEC

    With no key economic news scheduled this week, investors await the outcome of Monday's meeting of the Organization of Petroleum Exporting Countries (OPEC) in Vienna, Austria. Analysts anticipate OPEC will increase oil output. They said the question remains by how much.
    Oil prices have tripled in the U.S. since the organization dramatically cut production one year ago. As a result, the higher prices, which hint of inflation, have weighed on the fixed income market.
    But helping Treasury prices was a coupon pass from the Fed. The central bank bought government securities with maturities ranging from Nov. 15, 2008 to Aug. 15, 2021 in a process known as a coupon pass, which often provides support by reducing supply.
    The latest economic news did little to stir price movement. U.S. existing home sales rose 6.7 percent to a 4.75 million annual rate in February from a revised 4.45 million in January, suggesting housing is beginning to show a slowing due to higher interest rates.
    But the housing market appears to be the only pocket of the economy that reflects any slowing. Jim O'Sullivan, economist at J.P. Morgan, told CNNfn's market coverage he expects the Fed to tighten by three-quarters of a point from the current period through August. (176.4K WAV) (176.4K AIFF)
    Looking ahead, because the week's economic calendar is light, market participants are expected to take cues from elsewhere, such as stocks, to provide direction.
    (Click here for a look at Briefing.com's economic calendar.)
    
Euro slides vs. dollar

    In the currency markets, the euro fell sharply against the U.S dollar Monday. Alex Beuzelin, senior market analyst at Ruesch International, attributed the dollar's rebound to profit taking against the Swiss franc and the euro following their rally last week, which was ignited by a surprise three quarter point rate hike by the Swiss central bank.
    graphicShortly before 3 p.m. ET, the single currency traded at 96.56 cents, down from 97.68 cents Friday, a 1.2 percent gain in the dollar's value
    Meanwhile, the dollar was virtually flat against the yen, changing hands at 106.74 yen, up from 106.72 yen Friday. Back to top

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.