New York Market: Treasury bond rally dies down
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Your support makes all the difference.The rally in US Treasury bonds that drove yields to the lowest level in more than three decades came to an abrupt halt last week, and investors said it's not likely to resume again soon.
Holders of the 30-year Treasury bond suffered the worst week in two years. A 13.7 per cent plunge in the dollar against the yen soured investors on US securities and triggered selling.
"When you see a flight like this, it's people looking to get out - plain and simple," said David Kotok of Cumberland Advisors. He sold all $100m (pounds 58m) of his long-term Treasuries on Monday.
Scott Grannis at Western Asset Management said he doesn't rule out further gains for bonds, though he's not betting the house on it. The 30-year bond yield fell to 4.69 per cent on Monday, the lowest for long-term US debt since April 1967. It recently yielded 5.12 per cent, about the same as two weeks ago.
It's a different story for Treasury bills. As global markets tumble, investors may keep parking their money in the shortest Treasuries, viewed as the easiest to trade. Treasury bills posted their biggest gain in more than six years on Thursday, while bonds tumbled.
"I don't think the flight to quality's over," said Steve Merrell, of American Express Asset Management in Minneapolis. "Anything that's not a Treasury is getting killed."
The Nasdaq Composite Index has lost about a quarter of its value since its July high, and few investors expect a turn soon as slowing economies prompt companies to spend less on technology.
Hardware and software companies such as Dell Computer and Microsoft, which helped drive the eight-year bull market, are among the stocks that have knocked the Nasdaq down 5 per cent this year, while the S&P 500 Index gained a little more than 1 per cent.
Last week alone, the Nasdaq lost 7.6 per cent, while the Dow Jones Index managed a gain of 1.5 per cent and the S&P index fell 1.8 per cent.
"Pessimism has totally taken over and we have not necessarily reached a bottom," for computer-related shares, said Ted Bridges, a money manager at Bridges Investment Counsel. "There is a lot more fear out there than there was a week ago."
The situation isn't likely to improve soon. Federal Reserve Chairman Alan Greenspan said last week: "The outlook for 1999 for the US economy has weakened measurably."
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