CREDIT : Uncertainty Discourages Bond Buyers
Bond prices fell Tuesday with longer-maturing issues suffering the most amid uncertainty over the outcome of the Persian Gulf crisis and its economic impact.
“With the Middle East situation so mixed up, nobody wants to commit to 30-year securities,” said Gib Clark, chief government bond trader at Daiwa Securities Inc. “There are no buyers at all in the market, especially in the longer-term securities.”
The Treasury’s benchmark 30-year bond fell 19/32, or $5.94 per $1,000 face amount, while its yield, which rises when prices fall, rose to 8.86% from 8.80% late Monday. Shorter-term issues lost less.
The Treasury auctioned $11.53 billion in 3-year notes at an average yield of 8.10%. The yield was considered disappointing for the government, and bode ill for a 10-year note auction today and a 30-year bond auction on Thursday.
“The uncertainty of the situation is weighing on the market because you don’t know how the (oil) situation will work out. There could be even higher oil prices, or it could be resolved in a favorable way,” said Carl Palash, economist at McCarthy, Crisanti & Maffei.
Clark said higher yields on government bonds abroad, particularly in Japan, are cutting down on the number of foreign buyers for U.S. bonds. Also, the strengthening of the German mark against major currencies and higher yields on German bonds have drawn buyers away from the U.S. market.
“They have no reason to come over here,” Clark said.
The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 8%, up from 7.875% late Monday.
CURRENCY Dollar Manages Strong Rebound The dollar ended higher Tuesday against all major currencies as traders kept a close watch on the Iraq-Kuwait crisis and its effect on interest rates. Gold was mixed.
Ronald H. Holzer, chief currency dealer at Harris Trust in Chicago, attributed the dollar’s rise largely to technical factors. But he said traders were also buying dollars on the belief that U.S. interest rates would remain stable short term.
The dollar had fallen sharply on Monday against all major currencies except the Japanese yen, on worries that the Federal Reserve would push interest rates lower to prevent the country from falling into a recession.
In Tokyo, where global trading begins, the dollar closed up at 150.60 Japanese yen from 149.50 Monday. It traded at 149.90 yen in London, and at 150.90 in New York, up from 150.35 Monday.
Against the mark, the dollar rose to 1.5870 in New York, versus 1.5760 Monday.
The dollar was mixed against the British pound. Sterling bought $1.8765 in London, up from $1.8725 Monday, and $1.8715 in New York, down from $1.8725.
On the New York Commodity Exchange, gold bullion for current delivery settled at $384.50 a troy ounce, down 20 cents from Monday. Later, Republic National Bank in New York quoted a bid for gold at $385.50 an ounce, up $1.50.
COMMODITIES Oil Prices Rise in Wild Trading Oil prices advanced again in hectic trading, as the market sorted through numerous rumors about Mideast developments.
The September contract for West Texas Intermediate crude oil rose 26 cents to $28.31 a barrel--the highest level for the near-term contract since Dec. 6, 1985, when the price reached $28.74.
The price reached as high as $29 during trading Tuesday on the New York Mercantile Exchange, and from the low to the high the price swung $2.45 a barrel.
The market opened calmer than expected on word that Iraqi leader Saddam Hussein would allow foreigners in Kuwait and Iraq to leave. Then, unconfirmed reports--including one that Iraq had invaded Saudi Arabia--drove the market up and down fitfully.
Traders said the markets were so volatile that the near-term direction was impossible to predict. “There’s just no reference point,” one trader said.
Still, “It’s hard to envision a more bullish scenario than what we have now--the potential that two of the largest producers in the Persian Gulf could go to war,” said Andrew Lebow, an analyst with E.D.F. Man International Futures.
After trading closed on the Merc, the United States said American troops were being sent to Saudi Arabia as part of a multinational force to defend the country.
In the gasoline and heating oil markets, contracts for deferred deliveries, which are restricted in their movements by exchange-enforced limits, rose most sharply in an attempt to catch up with the limitless near-month contracts.
After the close, the American Petroleum Institute released weekly figures showing a steeper-than-expected decline in U.S. stocks of crude and an unexpected increase in gasoline supplies.
Elsewhere, cattle futures prices surged on the Chicago Mercantile Exchange, reflecting an easing of economic worries linked to the Middle East crisis, strength in the cash cattle markets and chart-inspired buying.
On other commodity markets, pork futures ended mixed; precious metals were mostly lower, and grains and soybeans were mixed.
News from the Middle East remained a major influence in many commodity markets but signs during the day that hostilities were cooling allowed traders to focus on other factors as well.
Live cattle futures settled .28 cent to 1.15 cents higher in Chicago, with the contract for delivery in August at 77.77 cents a pound; feeder cattle were .55 cent to 1.12 cent higher, with August at 89.67 cents a pound; live hogs were .95 cent lower to .05 cent higher, with August at 58.07 cents a pound, and frozen pork bellies were .40 cent lower to .52 cent higher, with August at 51.07 cents a pound.
Tables begin on D8
