Posted on 06/24/2002 7:15:29 AM PDT by Free Fire Zone
Bonds up, dollar flops
Treasurys rise on weakness in equities futures; dollar drops against euro, yen.
June 24, 2002: 9:28 AM EDT
NEW YORK (CNN/Money) - U.S. Treasurys climbed across the curve early Monday -- with equities futures pointed to a down open for stocks -- while the dollar continued to sink.
The dollar sank to a two-year low against the euro and was weaker against the yen following a Bank of Japan intervention to stop the yen's rise.
Around 9:25 a.m. ET, two-year notes rose 2/32 of a point to 100-26/32 to yield 2.81 percent, while 5-year notes rose 5/32 of a point to 101-20/32 to yield to 4 percent.
The benchmark 10-year notes firmed 14/32 of a point to 101-07/32, yielding 4.71 percent, while 30-year bonds rose 19/32 of a point to 100-5/32 to yield 5.36 percent.
Dovish comments on interest rates by ex-Federal Reserve Governor Laurence Meyer added to the bullish mood as did geopolitical tensions.
A steep slide in the dollar did raise a few eyebrows, though dealers continue to see it as a reflection of investor unease with equities rather than bonds.
"Typically a run on a currency leads to higher interest rates as investors demand a greater risk premium," a trader at a U.S. primary dealer said.
"But in this case, market interest rates have been falling. Fund managers might be taking it out of Wall Street's hide but Treasurys are still a safe haven," he said.
Sentiment was supported by recently retired Fed Governor Meyer, who told the Financial Times there is almost no chance of an official rate hike at either of the next two Fed policy meetings.
Meyer also touched on the chance of an easing in policy, arguing that if growth remains sub-par over a sustained period, then it would take only a rise in unemployment to push the central bank into cutting rates.
Monday brings no new economic updates, with most of the reports scheduled for later in the week , including fresh consumer confidence, durable goods, home sales, personal consumption and the Chicago PMI data.
Dollar in downward spiral
In the currency market, the dollar took another pounding early Monday, falling to a more than two-year low against the euro, and its weakness prompted the Bank of Japan to intervene to halt a surge in the yen.
The Bank of Japan, concerned that a soaring yen will hit the countries' exporters and make it still more difficult for the economy to sail out of the doldrums, intervened to sell its currency for the first time in three weeks.
Analysts blamed the dollar's weakness on the fall in U.S. stock prices, which continued Friday when the Dow Jones industrial average closed at its lowest level since Oct. 31.
"The U.S. dollar's being hit really badly. We're seeing sellers all over the place. There is a smell of capitulation in the market," said Tom Hougaard, chief market strategist at London spread betting firm City Index.
And economists also worry that the United States will have trouble sucking in desperately needed investment.
"The big problem for the dollar is the weakness of U.S. asset markets, which means the United States will find it hard to finance their current account deficit," said Shahab Jalinoos, currency strategist at UBS Warburg in London.
Around 9:25 a.m. ET, the euro bought 97.90 U.S. cents, up from 96.95 cents Friday.
The dollar was quoted at ¥121.19, down from ¥121.62 cents Friday.
1. U.S. Treasurys climbed across the curve early Monday2. We're seeing sellers all over the place. There is a smell of capitulation in the market
3. The big problem for the dollar is the weakness of U.S. asset markets, which means the United States will find it hard to finance their current account deficit,"
Sorry. Layman trying to understand. Any help is appreciated.
1. U.S. Treasurys climbed across the curve early Monday
The value of treasury bonds went up for all lengths of bonds (1 year, 10 year, 30 year, etc). When the value goes up, interest rates go down. Esentially more investors are looking for a safe place to put money, so they are trying to buy bonds which drive up the prices.
Bond prices and interest rates go in opposite directions. If someone is selling a piece of paper which says the governement will give you $100 in one year, and they are willing to sell it for $90 today the interest rate is about 11.1% ($10 interest / $90 principal = 0.111 = 11.1%). If the value of that bond goes up to $95, the interest rate is now 5.2%.
2. We're seeing sellers all over the place. There is a smell of capitulation in the market
Everyone wants to get rid of stocks. A lot of times people will say "$100 is too much for that stock, but I'll buy at $95." Now you have more people saying "Stocks. No not now, they're just too risky"
3. The big problem for the dollar is the weakness of U.S. asset markets, which means the United States will find it hard to finance their current account deficit,"
Foreigners don't believe that the US is a good place to invest, so they don't buy US stocks. That means there is less demand to get dollars, so the value of dollars goes down relative to other currencies. I don't know, off the top of my head, why this would make it hard to finance the trade deficit.
Please remember, I'm not an economist. If you base your investments on my advice, your portfolio will probably stink as badly as mine has the past couple of years.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.