The finance ministers from the Group of Seven industrialized nations concentrated on the Soviet Union's problems at their weekend meeting, and the communique released Saturday showed they have no plans for coordinated action on interest rates.
The statement says varying monetary and fiscal policies "reflect the difering situation in each country," while providing "the basis for lower real interest rates and sustained growth with price stability in a medium-term perspective."
After the meeting, some ministers made comments suggesting they would like the yen to strengthen, but analysts pointed out that mere talk about foreign exchange levels has its limits.
"There were a couple of comments, particularly by French finance minister [Pierre] Beregovoy, to support the notion of a stronger yen, but I think that was more sour grapes than anything," said Carl Weinberg, chief economist for High Frequency Economics.
Mr. Weinberg speculated that the United States had overruled the French desire for an agreement to strengthen the yen because it preferred to to get Japanese concessions on Soviet aid.
In any case, he warned against putting too much emphasis on the comments.
"Jawboning alone can't move currencies very far for very long," he said.
Still, said David Brown, an international economist at Swiss Bank Corp. in London, "one of the things you should listen to in the foreign exchange markets is what G-7 is telling you, and [strengthening the yen has] definitely been a key theme."
The Japanese trade surplus has been expanding against both the United States and Europe, Mr. Brown said, and those countries would prefer to rectify the problem by beefing up the yen.
Those worrying about the trend in Japanese trade surpluses got some ammunition yesterday when Japan announced its trade surplus jumped to $9.76 billion in September, from $6.89 billion in September 1990.
For the first six months of Japan's fiscal year, which began April 1, the trade surplus was running 38% above its level a year earlier.
"Although the ultimate statement wasn't worded as strongly as some had expected, there's no getting away from the fact that the G-7 would like to see a stronger yen as a means of doing something to sort out the imbalances on trading flows," Mr. Brown said.
On another matter, he said U.S. Treasury securities no longer seemed to offer good value to investors.
If investors want to stay in U.S. bonds, Mr. Brown suggested they move out the yield curve; otherwise, the best buys are to be found in Europe, he said. "In Europe as a whole, what we're seeing is a slowdown in growth, with inflation also slowing down."
Right now, investors can buy higher-yielding paper, such as securities from Sweden, Denmark, Italy or Spain, and realize capital gains as the approach of European monetary union drags other countries' interest rates down toward Germany's, according to Mr. Brown.
"Over the next few years, as all these economies start to converge, there will be a unique opportunity for investors to jump on the bandwagon of yield convergence as their yields move toward Germany's," he said.
Mr. Brown cited the example of Danish bonds, which currently yield 80 basis points over German paper. "We expect to see the spread on Danish bonds narrow to about 50 basis points over the next six months," he said.
Treasury Market Yields
Monday Week Month
3-Month Bill NA 5.14 5.40
6-Month Bill NA 5.26 5.50
1-Year Bill NA 5.31 5.57
2-Year Note 5.86 5.90 6.18
3-Year Note 6.12 6.13 6.53
4-Year Note 6.30 6.32 6.68
5-Year Note 6.80 6.79 7.18
7-Year Note 7.16 7.14 7.52
10-Year Note 7.45 7.38 7.71
15-Year Bond 7.72 7.68 7.92
30-Year Bond 7.87 7.79 7.99
Source: Cantor, Fitzgerald/Telerate
He added that as countries link their currencies to the European currency unit, as Sweden did this fall, they are seen as presenting less interest-rate risk for U.S. investors.
Treasury securities marked time in overseas trading yesterday, and by the time the London markets closed, the 30-year bond was yielding 7.87%, little changed from Friday's close.
The cash government market was closed yesterday in the United States for Columbus Day, but was open in Tokyo and London. Also, bond futures contracts traded in Chicago in a shortened session lasting until 1 p.m., edt.
Treasury prices improved a little in Tokyo, continuing the uptrend seen Friday in New York, then retraced some of those gains in London.
London traders said flows were so light it took very little to move prices. They noted that the front end of the market continued to trade well, since many participants expect the Fed to cut its funds target by 25 basis points sometime this week.
The Fed may ease today or else wait until after Thursday's consumer price report, traders said.
A London trader who is not so optimistic estimated there is only a 50-50 chance the Fed will ease this week.
The trader said the steep yield curve, which suggests lingering inflation fears at the long end, may discourage Fed policymarkers. "What the Federal Open Market Committee always wants to do is ease under a less inflationary atmosphere," he said.
The December bond future contract closed 3/32 lower, at 99 25/32.
In the cash market, the 30-year 8 1/8% bond was 1/16 higher, at 96 4/32-96 28/32, to yield 7.87%.
The 7 7/8% 10-year note was unchanged, at 102 23/32-102 27/32, to yield 7.45%.
The three-hear 6 7/8% note was up 1/32, at 101 27.32-101 29/32, to yield 6.12%.
In when-issued trading, the 7 1/8% seven-year note was /32, at 99 22/32-99 26/32, to yield 7.16%. The issue, which settles today, was auctioned at an average of 7.20% last Wednesday.