Financial Markets : CREDIT : Treasury Bonds Slump Again, Wipe Out Rally
Prices of Treasury bonds sagged again Thursday, reversing course at midday in a drop that erased a modest rally.
The Treasury’s benchmark 30-year bond, which has fallen more than a point over the past two sessions, lost another 9/16 point, or just over $5 for every $1,000 in face value. It had been up more than 1/4 point in the morning.
Its yield, which rises when prices fall, advanced to 8.46% from 8.40% late Wednesday.
Bond traders had said the early rally effort was a reaction to the recent selloff and didn’t imply any fundamental improvement in market sentiment.
The market has been depressed all week by worries that U.S. investments may be losing their allure for foreigners, particularly the Japanese. Rising interest rates abroad are making foreign investments more attractive.
The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 8.188%, down from 8.375 late Wednesday.
CURRENCY Dollar Is Mostly Lower; Gold Mixed
The dollar closed mostly lower as a variety of rumors heightened trader fears about foreign investment in the United States. Gold prices were mixed.
The U.S. currency suffered its largest drop against the Japanese yen after reports that Japanese institutional investors were selling large amounts of dollars, said Robert Ryan, senior trader at Bank of New York Co.
Reports that the Federal Reserve was selling dollars against the yen also took a toll, Ryan said.
The dollar slumped to 143.925 yen in New York from late Wednesday’s 145.715 yen. In earlier Tokyo trading, the dollar fell 0.50 yen to 145.30 yen, and in London, it was quoted late in the day at 144.40 yen.
Ryan said the dollar was also hurt by a report that Fed Chairman Alan Greenspan was calling for a withholding tax on foreigners investing in the United States. Such a move would discourage foreign investment in this country, and in turn, foreign demand for dollars.
In fact, Greenspan cautioned Congress in testimony Thursday against placing any new impediments on foreign investment, saying it would force interest rates higher and “probably curb economic activity.”
In London, the British pound rose to $1.6570 from $1.6555 late Wednesday. In later New York dealings, the pound rose to $1.6600 from $1.65255.
Gold prices were mixed in New York. On the Commodity Exchange, an ounce of gold fell $1.20 to $416, but Republic National Bank later quoted a bid of $417 an ounce, up 40 cents from Wednesday.
COMMODITIES Oil Prices Rally on Storm Fears
Oil prices rallied on fears that the worst storm to hit Britain since a 1987 hurricane may disrupt the flow of North Sea oil.
On other commodity markets, wheat, corn and oat futures prices sank; sugar futures were up sharply; pork bellies soared while livestock futures were mixed, and precious metals were mixed.
West Texas Intermediate crude traded on the New York Mercantile Exchange still managed to close with a gain of 65 cents in the March contract, to $22.24 a barrel.
February unleaded gasoline finished 1.22 cents higher at 60.60 cents per gallon, and February heating oil regained some of its recent steep losses to end 0.20 cent higher at 59.77 cents.
Wheat futures prices sank to four-month lows on the Chicago Board of Trade and soybean futures reached their lowest levels since mid-October in a selloff linked to wetter weather and slack demand for feed grains both domestically and abroad.
Wheat futures settled 2 to 6 cents lower, with the contract for delivery in March down 6 cents at $3.855 a bushel, the lowest settlement of a near-month wheat contract since Sept. 20.
Soybeans ended 7.50 to 8.25 cents lower, with March down 7.75 cents at $5.5825 a bushel, the lowest daily settlement for near-month soybeans since Oct. 17.
Corn futures settled 1.25 to 2.25 cents lower, with March at $2.3925 a bushel; oats were unchanged to 2 cents lower, with March at $1.37 a bushel.
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