Debt Traders Yawn at Fed Move, Although Prices Slip
Long-term
Treasury securities ended lower, reacting less than anticipated to the
Federal Reserve's announcement that it is more worried about a weakening economy than about inflation. Yields were higher as bond prices fell, reversing a trend of the past few days that had sent them to repeated lows for the year.
At its final meeting of the year, the
Federal Open Market Committee decided to maintain the
fed funds rate at 6.5%, but for the first time in two years moved to a stance that would indicate interest-rate cuts are more likely than increases. The market largely expected this, especially after a recent speech from Fed Chairman
Alan Greenspan, who acknowledged the
slowdown. At its previous meeting, on Nov. 15, the committee was still leaning in the direction of higher rates.In its
statement, the Fed said "risks are weighted mainly towards conditions that may generate economic weakness in the foreseeable future." It said it would "continue to monitor closely the evolving economic situation," but did not suggest that it would cut interest rates at its next meeting Jan. 30 and 31.
"There was surprisingly little volatility to the Fed announcement, and what little shift there was in bonds was due to the decline in the equity market," said Mike Ryan, chief fixed-income strategist at
UBS Warburg
. He felt the bond market was heading to a typical year-end wind-down in which overextended traders pull back. "In the absence of any major economic releases coming out soon, the main question for most will be 'What do we do through year-end?' and they will be mainly squaring positions."
The benchmark 10-year
Treasury note fell 6/32 to 104 04/32, raising its yield 2.6 basis points to 5.2%. This is still higher than where it was trading before the Fed announcement.
The 30-year
Treasury bond fell 15/32 to 111 7/32, raising its yield 2.9 basis points to 112 31/32.
Richard Bodkin, senior government trader at
Banc One Securities
, agreed that the bond market had been quiet earlier in the day in anticipation of the Fed's move, but ultimately it reacted to the stock markets' ups and downs, rather than to the Fed's statement.
At the
Chicago Board of Trade
, the March
Treasury futures contract fell 5/32 to 104 16/32.
Economic Indicators
In economic news, the
international trade
(
definition |
chart |
) report showed that the trade deficit narrowed to $33.2 billion in October from $33.7 billion in September. Imports and exports both fell.
The
BTM-UBSW Weekly Chain Store Sales Index
(
definition |
chart ) fell 0.6%, its third consecutive decline. The
Redbook Retail Average
(
definition |
chart) found December sales running 0.2% behind November after three weeks, widely missing the target of a 1% gain. These numbers indicate that consumer spending is slowing.
The
Housing Market Index
(
definition |
chart |
source
) for December was down to 57 from 65.
Currency and Commodities
The dollar rose against the yen and fell against the euro. It lately was worth 112.36 yen, up from 112.15. The euro was worth $0.8946, up from $0.8934. For more on currencies, see
TSC's
Currencies column.
Crude oil for January delivery at the
New York Mercantile Exchange
fell to $28.75 a barrel from $29.76.
The
Bridge Commodity Research Bureau Index
fell to 228.20 from 228.50.
Gold for February delivery at the
Comex
rose to $272.70 an ounce from $272.
