Magazine article American Banker

Bond Prices Hit 2-Year High

Magazine article American Banker

Bond Prices Hit 2-Year High

Article excerpt

The U.S. government bond market rallied last week to heights not seen since the culmination of the bull market that stretched from fall 1981 to the end of spring 1983.

The market was driven higher by expectations that the economy will remain sluggish and by heavy foreign investor buying, particularly Japanese. With buy orders flowing in heavily from Tokyo, there was intense speculation that the Japanese Finance Ministry may have made, or is about to make, changes in regulations that would have money managers there increase purchases of non-yen-denominated assets.

A rumor surfaced Tuesday that a rule had been initiated to increase the allowable percentage of pension trust money that can be invested in U.S. Treasuries if the U.S. dollar stays below 250 yen for any 10-day period.

Dealers said, however, that they were not sure the buying was simply taking place because the dollar was below 250 yen (it traded at about 248.60 late last week). Japan has made some moves toward removing restrictions on its money managers to increase their comptitiveness with a growing U.S. money management presence there. But the Finance Ministry Thursday denied that it made any new moves.

Japanese a Big Help

A trader with a New York investment banking firm that has extensive fixed-income operations in tokyo said the Japanese government may not have changed guidelines but may be a bit more lenient in oversight in the current invironment.

"What's basically holding our market together in the Japanese," said a senior trader with a new York money center bank. "They're giving us lower interest rates."

At the heat of the market's rally early Wednesday morning, long-term government bond yeilds, as measured by the longest maturing 30-year bond, the 11-1/4s of 2015, fell as low as 10.16%, with the issue trading at 110 in New York. …

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