By GREGORY ZUCKERMAN and ED ZWIRN Staff Reporters of The Wall Street Journal
Updated Aug. 6, 1998 12:14 a.m. ET
Read in Wall Street Journal
NEW YORK — Continuing turbulence in the stock market failed to lift Treasury securities Wednesday, as safe-harbor bond buying was overwhelmed by selling from international investors.
Many sellers took their cue from a falling dollar, while others flocked to a $3 billion bond offering from Fannie Mae .
The benchmark 30-year bond fell 17/32, or $5.3125 for a bond with $1,000 face value, to 106 13/32. The bond’s yield, which moves in the opposite direction of the price, rose to 5.665%.
Shorter-term Treasurys performed much better, however, thanks in part to the upheaval in the stock market. Two-year notes, for example, finished the day unchanged. Short-term securities are often favored by nervous stock investors.
But a late-day stock rally helped reduce the need for safe harbors.
Just as important, the dollar slipped against the yen after Japan’s recently appointed finance minister indicated that tax cuts would exceed six trillion yen next year. The dollar traded at 143.95 yen, down sharply from 145.05 late Tuesday.
Treasury Sharply Reduces Minimums for Bills, Notes
Some analysts said investors would be reluctant to plunge into bonds before Friday’s release of the monthly jobs report, although the performance of the stock market and the dollar are likely to be the most important near-term factors.
The market had little reaction to the release of the Federal Reserve’s latest Beige Book, which noted that the economy continued at a high level of activity in June and July, although there were signs of moderation.
Meanwhile, Fannie Mae achieved a record level of participation from Asian investors for its latest Benchmark Note offering, as demand for dollar-denominated assets boosted interest.
Asian buyers took 32% of the $3 billion offering of five-year noncallable bonds, the highest percentage to date in Fannie Mae’s continuing effort to issue sizable bond offerings on a regular basis. Overall international participation was 58%.
Market participants said that the response underscored Fannie Mae’s success in offering an alternative to Treasurys, especially for foreign investors.
“The major investors in Asia have been very defensive,” said Phil Darivoff of Goldman, Sachs & Co. Goldman, Credit Suisse First Boston, a unit of Credit Suisse Group , and Morgan Stanley Dean Witter led the offering.
Wednesday’s bonds were priced to yield 0.2775 percentage point more than comparable Treasurys.
In other credit markets:
Mortgage-backed securities were off 2/32 in continued range-bound trading.
The new-issue calendar once again took top billing in the municipal bond market , while the secondary market was unchanged in lackluster trading.
After a week of frenzy and hype surrounding WorldCom’s jumbo deal scheduled to price Thursday, corporate bond investors began to sober up.
The Eurobond market focused on jumbo offerings of global U.S.-dollar bonds.