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Markets & Stocks
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Bonds tumble; dollar rebounds
U.S. Treasurys under pressure as equities rally; dollar builds on Friday's gains versus euro, yen.
July 29, 2002: 3:49 PM EDT

NEW YORK (CNN/Money) - Rallying stocks knocked U.S. Treasury prices lower Monday as investors liquidated positions in safe-haven government bonds and began buying equities after months of selling.

Meanwhile, the dollar held strong gains from Friday, when the U.S. currency put the brakes on a long slide against the euro and the yen.

Two-year Treasury notes fell 11/32 to 99-22/32, pushing yields up to 2.40 percent from 2.23 percent at Friday's close. Two-year yields have fallen a staggering 100 basis points in just three months. Five-year notes, which also have benefited from a flight-to-quality, fell 29/32 to 103-12/32, yielding 3.59 percent versus 3.40 Friday.

The benchmark 10-year note slipped 1-13/32 to 102-11/32, yielding 4.56 percent, up from 4.39 percent Friday. The 30-year cash bond shed 1-17/32 to 99-31/32 for a yield of 5.42 percent, up from 5.31 percent at the end of last week.

But even as the Dow logged a weekly gain after weeks of relentless selling and climbed again Monday, bond market participants were not yet convinced that a bounce from five-year lows meant the stock market was forging a bottom in the worst bear market since the mid-1970s.

"People are waiting for the headfake, for stocks to come off, and then they'll use this as an opportunity to buy Treasurys," one Chicago Board of Trade bond broker said.

Expected debt sales by the Treasury also pressured the bond market. The Treasury is expected to announce it will sell $22 billion of new five-year paper and $15 billion of benchmark 10-year notes the following week, according to Wrightson Associates.

Treasury also may announce it will go to quarterly 10-year note sales to meet its rising borrowing needs, ditching its practice of regularly re-opening these issues.

In its quarterly borrowing estimate, the Treasury said it expects to borrow $76 billion in the final quarter of the government's fiscal year, which ends in September. In late April, the Treasury had estimated the amount it would need to borrow at a only $55 billion.

"The increase in financing is due to lower receipts and higher outlays," the Treasury said.

While there were no economic data on Monday's calendar, plenty of U.S. releases are scheduled for later in the week, including reports on national manufacturing and the July payrolls report, all of which could threaten lofty Treasurys if they show strength.

"The front end has been buoyed of late by a flight to quality, a flight to liquidity, and some of that has stemmed from the erosion in equity prices," said Bill Sullivan, senior economist at Morgan Stanley in Jersey City, N.J..

"If we turn that flow of funds around, you could see the two-year note yield go up 20, 30, 40 basis points in a week, easily," Sullivan said.

With investors more keen on shorter-dated maturities, the yield curve last week steepened to levels not seen since early 1992, also a time when the U.S. was emerging from recession.

Dollar rebounds, holds gains

In the currency market, the dollar staged a broad-based rebound early Monday, attributed by some to expectations of a firm opening in U.S. stocks.

The euro bought 98.04 U.S. cents, down from 98.73 cents Friday.

The dollar purchased ¥119.79, up from ¥118.80 Friday.

The yen hit three-week lows against the greenback as news of a sharp fall in Japanese industrial output raised doubts over the strength of Japan's recovery.

Japan's industrial output fell for the first time in five months in June as exports to the United States lost momentum, raising worries that the key force behind Japan's recovery may be waning.

"Japanese exporters are suffering both from a stronger yen and from a slump in U.S. demand," said Paul Mackel, currency strategist at Dresdner Kleinwort Wasserstein.

"In the near term, the dollar looks to have found some support even if its medium-term outlook is still weak."

The dollar set off on recovery mode following an upbeat U.S. consumer confidence survey Friday.

Japanese officials have long argued that the yen's recent surge against the dollar could jeopardize the country's fragile recovery.

"We're back to a Japan-needs-a-weaker-yen argument," one London-based trader said.  Top of page




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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.