CREDIT : Treasury Note Auction Called a ‘Disaster’
The Treasury’s auction of $10.5 billion in 10-year notes Wednesday saw the worst bidding in recent years and led one dealer to describe it as a “disaster.”
The poor results at the second leg of this week’s record $32.25-billion auction of new U.S. government securities led dealers to speculate that today’s auction of $10.25 billion in 30-year bonds would be even more dismal.
“We just had a disaster auction,” said David Green, trader at Chemical Securities Inc.
The 10-year notes yielded an average 8.77%. The market expected 8.74%. Even so, yields on other long-term bonds generally eased late Wednesday, helped by Atlantic Richfield Co.’s announcement that it will freeze wholesale oil-product prices for one week. That calmed some inflation worries. The yield on the 30-year T-bond slipped to 8.84% from 8.86% on Tuesday.
“This is just a terrible week to be trying to launch new issues,” said Robert DiClemente, an analyst at Salomon Bros. “It’s not very easy for people to make decisions on value in a market on edge about events in the Mideast.”
Fear of violent price moves between the auction bidding deadline and the release of results kept the bidding extremely cautious for the 10-year notes. Analysts were shocked that Japanese bidders took only an estimated 20% of the notes, compared to a normal 30%. Bidding by individuals also was very limited.
Some analysts said that with a sharp fall in the Japanese stock market, Japanese investors had little cash to spare. “You have to remember the Japanese bond and stock markets have not been doing all that well” so the Japanese are not enthusiastic about making fresh overseas investments, another dealer said.
Most telling was that only $16.74 billion in bids were made for the $10.5 billion in notes offered. In May, bids totaled three times the sale amount.
Meanwhile, the federal funds rate, the rate banks charge each other on overnight loans, rose to 8.125% from 8% on Tuesday.
CURRENCY Dollar Gets Lift From Mideast Strife The dollar ended higher against all major currencies except the Japanese yen and Canadian dollar, boosted by rising tensions in the Mideast.
Currency dealers said the dollar started out sharply higher--on news U.S. troops were sent to Saudi Arabia--then fell back a bit on technical factors.
President Bush said Wednesday that U.S. warplanes and combat troops, backed by an armada of Navy ships, took up defensive positions in Saudi Arabia to protect that country against a possible invasion by Iraq.
The announcement seemed to calm the financial markets.
Nonetheless, the possibility of a conflict with Iraq pushed the dollar higher, dealers said. Those concerns, they said, outweighed any fundamental worries about economic weakness that could drive interest rates lower and make the dollar less appealing to foreign investors.
“On fears of the Middle East the dollar was way up,” said Robert Ryan, corporate foreign exchange manager for the Bank of New York.
Some dealers in Europe, though, debated whether the dollar was the safest currency to hold right now.
In fact, after Iraq invaded neighboring Kuwait last week, which touched off the Mideast tensions, currency dealers flocked to the German mark. The dollar had declined on worries that a rapid rise in oil prices eventually would push interest rates lower.
In Tokyo, where the global trading day begins, the dollar fell to a closing 150.00 Japanese yen from 150.60 on Tuesday. It traded at 150.15 yen in London and at 149.90 in New York, down from 150.90.
Against the German mark, the dollar rose to 1.592 from 1.587 on Tuesday.
The dollar was stronger against the British pound, compared to Tuesday. Sterling traded at $1.8660 in London, down from $1.8765, and at $1.86885 in New York, down from $1.8715.
COMMODITIES Gold Futures Dip; Oil Prices Decline Gold prices declined following a mixed performance overseas, despite mounting worries about a major Mideast war. Oil was sharply lower on profit taking.
On the Commodity Exchange in New York, gold for current delivery settled at $383.20 an ounce, down $1.30 from Tuesday.
On other commodity markets, pork futures fell sharply; cattle extended their gains, and grains and soybeans were mixed.
Copper futures ended 2 cents to 3.65 cents higher on the Comex, with August at $1.31 a pound.
The moves in copper and other commodities reflected a shift away from the inflation and recession fears that began building late last week, when Iraq invaded Kuwait and touched off a run-up in oil and a plunge in stocks worldwide.
Copper is used heavily throughout the construction and manufacturing industries, so its price is especially sensitive to signs of economic expansion or recession.
In West Texas Intermediate crude oil futures trading, the near-term contract plunged $2.35 to $25.96 a barrel on news of U.S. forces moving to protect Saudi oil fields. Heating oil was 2.46 cents to 5.01 cents lower, with September at 70.13 cents a gallon, and unleaded gasoline was 2.13 cents to 3.8 cents lower, with September at 76.21 cents a gallon.
Analysts said word that Saudi Arabia, Venezuela and other major oil-producing nations would increase their output also worked to suppress crude prices.
OPEC President Sadek Boussena urged members of the Organization of Petroleum Exporting Countries to avoid such “individual initiatives.”
But Tom Bentz, director of trading with United Energy Inc., said OPEC is likely to cooperate with the cartel’s customers.
“It’s not in their best interest to let prices go to $35 or $40 a barrel, because then people start looking for alternative sources of energy,” Bentz said.
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