The Treasury market ended in positive territory yesterday as the U.S. dollar stabilized and commodities prices fell, giving investors incentives to buy securities.
The 30-year bond closed up more than sh of a point, to yield 7.45%.
Treasuries staged an impressive midafternoon rally as dealers covered short positions and retail accounts purchased modest quantities of government-backed paper.
The stable dollar and sharp decline in the Commodity Research Bureau's index of 21 futures prices were widely cited as the primary forces behind the market's gains.
"People felt better about the market because of the steady dollar and drop in the CRB," said Marilyn Schaja, money market economist at Donaldson, Lufkin & Jenrette Securities Corp., noting that a stronger dollar reduces the chance that the Federal Reserve will raise rates in support of the currency.
Late yesterday, the dollar was changing hands at 1.5830 German marks, compared with 1.5803 late Friday, while the dollar closed out the New York trading session Monday at 100.44 yen, from 100.50 Friday.
The CRB index ended down more than two points to 227.77.
The afternoon buying spree enabled the government bond market to recoup early losses on lingering concerns about volatility in the global foreign exchange market.
The weak U.S. dollar continued to take its toll on Treasuries through the morning as players speculated about the likely effect of its recent declines on Fed policy.
Investors remain fearful that the sliding dollar will force the central bank to raise interest rates sooner than expected. Compounding those fears was the failure by central banks, through several rounds of concerted intervention last week, to shore up the flagging dollar. With intervention looking less and less like a viable method of supporting the dollar, bond market observers are now more inclined to believe the Fed might boost rates.
Dollar weakness is a negative for fixed-income investors because of the inflationary implications inherent in a declining currency's value. Lower currency rates are inflationary because they generally make imports more expensive, provide an umbrella for retailers and producers to raise prices, and shift demand toward U.S.-made products at a time when factories are running near full capacity.
The problem for the bond market in such a rising-inflation scenario is one of sponsorship and the all too apparent lack of foreign demand for U.S. government and corporate securities.
In futures, the September bond contract ended up 26/32 at 103.08.
In the cash markets, the 6% two-year note was quoted late, Monday up 1/32 at 99.29-99.30 to yield 6.03%. The 6 3/4% five-year note ended up 5/32 at 99.25-99.27 to yield 6.78%. The 7 1/4% 10-year note was up 10/32 at 100. 16-100.20 to yield 7.15%, and the 6 1/4% 30-year bond was up 22/32 at 85.20-85.24 to yield 7.45%.
The three-month Treasury bill was down one basis point at 4.23%. The six-month bill was up one basis point at 4.76%, and the year bill was unchanged at 5.36%.
Corporate Securities
More corporate credit ratings were lowered than raised in the second quarter of 1994, Standard & Poor's Corp. said.
Downgrades outnumbered upgrades by a margin of 76 to 51. However, Standard & Poor's said the dollar volume of upgrades was $46.3 billion for the quarter, versus $39.3 billion in downgrades.
While the number of downgrades exceeded upgrades in every sector during the second quarter, the pace of corporate credit quality erosion moderated from first-quarter results, which totaled 99 downgrades on $155.1 billion of long-term debt, as compared with 80 upgrades on $38.2 billion, Standard & Poor's said.
During the first quarter, both the number of ratings lowered and the amount of debt downgraded exceeded upgrades in every sector except utilities, where the number of ratings lowered and raised was the same, Standard & Poor's said.
Issuers in the industrials segment experienced 23 downgrades during the second quarter, versus 20 upgrades.
Signs of eroding credit quality in the financial institutions sector were again evident during the second quarter, as 36 ratings were lowered, affecting $11.6 billion of debt, while 23 issues representing $8.9 billion were raised.
Among utilities, downgrades exceeded upgrades by a margin of 12 to eight. However, the dollar volume of upgrades in the sector totaled $11.7 billion, as compared with $5.5 billion of utility debt that was downgraded, the rating agency said.
Duff & Phelps Credit Rating Co. said it has upgraded the ratings of Citicorp and its Citibank NA subsidiary.
The long-term senior debt rating has been raised to A from A-minus, the subordinated debt rating has been raised to A-minus from BBB-plus, and the preferred stock rating has been raised to Duff 1 from Duff 1-minus. The long-term rating of Citibank NA has been raised to A-plus from A and the short-term rating of Duff 1 has been reaffirmed.
About $19 billion of securities are affected by the parent company rating changes. The ratings for Citicorp and Citibank are removed from Rating Watch-Up, where they were placed on April 21.
The rating upgrades reflect the continued improvement in Citicorp's fundamentals, Duff & Phelps said. Core profitability has improved significantly and balance sheet measures have also shown substantial strengthening.
Duff & Phelps upgraded the ratings of Chase Manhattan Corp. and its subsidiary banks, Chase Manhattan Bank NA and Chase Manhattan Bank.
The rating agency said the long-term senior debt rating has been raised to A from A-minus, the subordinated debt rating has been raised to A-minus from BBB-plus, and the preferred stock rating has been raised to BBB-plus from BBB.
The commercial paper rating has been increased to Duff 1 from Duff 1-minus. The long-term obligation ratings for Chase Manhattan Bank NA and Chase Manhattan Bank were raised to A-plus from A, and the short-term obligation ratings for these companies of Duff 1 have been reaffirmed.
Approximately $ 5 billion of securities are affected by the parent company rating changes. The ratings for Chase Manhattan Corp., Chase Manhattan Bank NA, and Chase Manhattan Bank are removed from Rating Watch-Up, where they were placed on April 21.
Duff & Phelps said the rating upgrades reflect the continued improvement in Chase's fundamentals. The company has made significant progress in strengthening balance sheet fundamentals as well as improving core profitability. Earnings performance has shown a continuation of the improvement that began during the early 1990s. Profitability has been bolstered by increases in fee revenue, good expense control, and lower credit charges.
In the secondary market for corporate securities, spreads of investment-grade issues narrowed by 1/8 to 1/4 of a point, while high-yield issues generally ended mixed. Treasury Market Yields Prev. Prev. Monday Week Month 3-Month Bill 4.23 4.19 4.26 6-Month Bill 4.76 4.64 4.78 1-Year Bill 5.36 5.17 5.30 2-Year Note 6.03 5.89 5.95 3-Year Note 6.31 6.23 6.29 5-Year Note 6.78 6.72 6.71 7-Year Note 6.81 6.76 6.75 10-Year Note 7.15 7.15 7.10 30-Year Bond 7.45 7.45 7.38 Source: Cantor, Fitzgerald/Telerate
