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Mix-Ansicht- Greenspan's Säbelzahntiger.... - kingsolomon, 23.01.2004, 23:38
Greenspan's Säbelzahntiger....
-->U.S. Treasuries tumble on overseas demand worries
Friday January 23, 5:06 pm ET
By Pedro Nicolaci da Costa
NEW YORK, Jan 23 (Reuters) - Treasury prices slid on Friday after a spike in the dollar stoked fears that foreign central bank appetite for U.S. government debt might falter.
The chain reaction began after a diplomatic source told Reuters that euro zone ministers attending a G7 meeting next month will argue that further strength in the euro might warrant an interest rate cut by the European Central Bank.
The comments knocked the euro lower against the dollar, which in turn sparked concern among traders that Asian central banks could cut back on their purchases of dollars.
Since much of such intervention money, particularly from the Bank of Japan, has wound up in Treasuries in recent months, the currency flip-flop forced investors out of the bond market on expectations of reduced foreign demand.
A suggestion from the U.S. Treasury that it might start issuing 20-year TIPS, or inflation-indexed bonds, sparked talk that the government might reintroduce the 30-year bond, compounding a sell-off in the long end.
"Treasury has claimed it didn't want to issue anything beyond 10-years because that tied their hands," noted Drew Matus, senior financial economist at Lehman Brothers."Now the market's thinking that if a 20-year is suddenly OK, then why not bring back the 30-year?"
Jostling for technical positions in the market was also partly responsible for the selling, which reversed an early climb and ate into the gains from a three-day rally.
Traders said speculators bought early in hope of breaking major chart resistance at 3.90/3.91 percent in the 10-year yield and forcing distressed hedging from mortgage managers.
But the ploy failed at 3.92 percent, and all the gains unraveled when European investors decided to book profits at the end of their trading day.
"The market tried so hard to break 3.90 (percent), but the Europeans threw in a curve ball," said Sadakichi Robbins, head of global fixed-income trading at Bank Julius Baer.
The 10-year note (US10YT=RR) slid 28/32 in price, driving yields up to 4.08 percent from an early four-month trough of 3.92 percent. The note had closed at 3.96 percent on Thursday.
Likewise, the 30-year bond (US30YT=RR) tumbled 1-19/32, taking its yield up to 4.95 percent, when earlier it had been celebrating a six-month low of 4.82 percent.
Shorter-dated debt has lagged recent gains and correspondingly suffered a little less. The two-year note (US2YT=RR) dipped 4/32, leaving yields little higher at 1.67 percent versus 1.62 percent on Thursday.
The two-year note yield, which is quite sensitive to market thinking on monetary policy, is anchored somewhat by expectations that the Federal Reserve will keep its accommodative stance when it meets next week.
The five-year note (US5YT=RR) lost 17/32, taking yields to 3.07 percent from 2.95 percent.
The selling was hardly surprising, given that Asian central banks have been big buyers of dollars in recent months and have parked much of that money in Treasuries, helping absorb a flood of government borrowing.
On Thursday, the Federal Reserve said its total holdings of Treasury and agency debt for central banks abroad rose $13.86 billion to a staggering $1.108 trillion in the week ended Jan. 21.
http://biz.yahoo.com/rf/040123/markets_bonds_6.html
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