CREDIT : Traders Take Second Look at War; Bond Prices Down
Bond prices fell as the Persian Gulf War showed signs of lasting longer than first expected. But short-term Treasuries benefited slightly as investors sought a safe place to park their cash.
The Treasury’s bellwether 30-year bond was down 15/32 point, or $4.69 per $1,000 in face amount. Its yield rose to 8.21% from 8.17% late Friday.
Bonds rallied sharply last week after the outbreak of war with Iraq. But all markets settled down Monday after they digested news of Iraqi missile attacks on Saudi Arabia and the capture of allied airmen.
“It is sinking in for more people that it is going to be a long and nasty war,” said Mike Casey, economist for Maria Ramirez Capital Consultants Inc.
Casey said investors were moving to shorter-term securities as a safe investment during uncertain times. The 30-year bond was depressed because of investor fears that a protracted war could lead to inflation.
Short-term bills also gained ground as traders speculated that the Federal Reserve may ease the federal funds rate soon. Several traders said they expected the target for the funds rate to drop 1/4 point to 6.50%. Federal funds were not traded Monday because of the Martin Luther King Jr. holiday.
CURRENCY Dollar Falls as Focus Shifts to Economy The dollar drifted lower in quiet trading as traders turned their attention from the war to the weak U.S. economy.
Traders said it was the first time since war erupted last Wednesday that the currency market focused on the dollar’s economic fundamentals instead of its safe-haven appeal in times of turmoil.
Trading was thin and wound down by early afternoon because of snow in the New York area and observance of the Martin Luther King Jr. holiday. Many banks were closed.
Currency analysts said it was difficult to single out factors behind the dollar’s decline because relatively few traders can influence the direction of sparsely traded markets.
Signs of economic weakness generally erode the dollar’s value and prompt investors to seek currencies from countries with stronger economies.
Underpinning the economic concerns were persistent rumors that interest rates in Japan and Germany may rise, analysts said. Higher rates in other countries can prompt traders to sell their dollars in favor of those countries’ currencies.
The dollar closed in New York at 1.4875 German marks, compared to 1.4975 marks Friday, and at 131.95 Japanese yen, compared to 132.25 yen Friday. The British pound strengthened to $1.9615 from late Friday’s $1.9513.
Other late dollar rates in New York, compared to late Friday’s prices, included: 1.2465 Swiss francs, down from 1.2560; 5.0565 French francs, down from 5.0930; 1,118.00 Italian lire, down from 1,126.50, and 1.1585 Canadian dollars, down from 1.1590.
COMMODITIES Gulf Reassessment Sparks Gold Rally Gold futures prices rallied amid perceptions that the Gulf War may drag on.
On other commodity markets, orange juice futures rose sharply, grains and soybeans retreated and livestock and meat futures were mixed.
Gold futures settled $4.40 to $4.70 higher on New York’s Commodity Exchange, with the contract for delivery in February at $379.50 an ounce; silver was 0.3 cent to 1.2 cents higher, with March at $4.02 an ounce.
Peter Cardillo, director of commodities research with Jesup, Josephthal & Co., said buying in the gold market reflected doubts about the U.S.-led allies’ ability to oust Iraqi troops quickly from Kuwait. Prices of both commodities fell dramatically last week after allied forces began bombing Iraqi targets.
“The euphoria is beginning to fade,” Cardillo said.
Cardillo said gold prices also were boosted by fears that the Soviet Union’s moves to quell unrest in Lithuania and Latvia could lead to civil war.
Market Roundup, D10
