US Treasury bonds fell by more than a point to push the yield on the benchmark 30-year bond up to 6.9 per cent at one point, prompting forecasts that the yield would soon breach the 7 per cent level.
In Britain, long-dated government bonds dropped by around two full points at one stage, driving share prices lower in their wake. The FT-SE 100 Index of leading UK shares plunged by more than 58 points yesterday afternoon but later recovered to close at 3,218.1, a loss of 37.6 on the day.
Worries that next Tuesday's meeting of the Fed's policymaking Federal Open Market Committee could authorise an increase in US rates also hurt European bond markets. The bund future dropped by almost one point in nervous trading made worse by fears that in February the growth of German money supply, M3, may have matched or even exceeded the 21.2 per cent annualised increase in January.
An unexpected visit to the White House by Mr Greenspan yesterday sent the bond market into a spin and caused a record number of shares to change hands on Wall Street, but left investors confused.
Aides to President Bill Clinton sought to play down the importance of the visit, terming it a 'fairly routine meeting to hear (Mr Greenspan's) views on the economy'. But many in the markets assumed it was to discuss a potential further increase in US interest rates. Some analysts predicted that the Clinton-Greenspan talks meant the Fed would now have to raise rates to preserve its credibility as an independent institution.
But Gene Sperling, the President's economic adviser, said rate policy was not discussed. The two spoke about 'their interpretations of data for the first quarter', apparently about the distorting effect of bad weather and the Los Angeles earthquake on economic reports.
Mr Greenspan cancelled a trip to Dallas to see Mr Clinton, prompting speculation about a possible resignation - which the Fed denied - and about political pressure over interest rates. But Mr Sperling said 'no messages were given or received', explaining the timing by saying Mr Clinton would be out of Washington for much of the coming month.
By the time the meeting had ended, the 30-year US long bond had recovered considerable ground, trading off 24/32 for a yield of 6.89 per cent. The Dow Jones industrial average closed up 30.51 at 3,895.65 with a late push on blue chips.
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