The collapsing value of the dollar vs. the Japanese yen sent U.S. Treasury bond futures plunging the limit allowed for daily trading Tuesday. T-bonds locked the limit 2 points lower on the Chicago Board of Trade and were expected to slump farther on Wednesday, judging from a later break in cash bonds. The June contract settled at 101 29/32 points.
The dollar for the second straight day fell to a post-World War II low and has declined 6.5% against the yen in the last week. Japanese investors have been the major foreign buyers of U.S. securities during the last two years, but the weakness of the dollar could make U.S. bonds unappealing, said Gary Dorsch, an analyst in Chicago with G. H. Miller & Co.
“A Japanese investor has to buy dollars to buy Treasury bonds,” he said, and the loss in this transaction offsets the advantage in owning U.S. securities, which carry interest rates about 3 percentage points better than Japanese securities.
Analyst Richard Sandor of Drexel Burnham Lambert, Chicago, said the belief that we’ve seen the end of cuts in the discount rate, talk of the Japanese selling half a billion dollars in bonds and oil prices firming up all cascaded into a limit-down move.