International Markets New York: Sprint to securities slowing

The recent rush to the safety of US Treasury securities may be waning as Asian governments move to repair their battered economies and world stock markets rebound.

That'll keep 30-year benchmark bond yields from falling below 6 per cent in coming weeks, some big bond investors say. Still, slower US growth and continued low inflation may drive yields to 5.5 per cent in 1998.

"Six per cent is going to be a formidable barrier this year, But into next year, it's reasonable to expect rates to go lower," said Kevin McClintock, fixed-income manager at Dreyfus Corp.

US bond yields have fallen almost half a percentage point since late October as troubled Asian markets sent investors scurrying to the guaranteed returns and stability of US government debt. The yield on Friday was at 6.04 per cent.

Now, attempts to bolster weaker Pacific Rim economies - including Korea's request on Friday for $20bn from the IMF - have many wading back into riskier investments, especially stocks.

The Dow Jones Industrial Average this week completed its recovery from a 7.2 per cent plunge on 27 October, jumping 4.1 per cent to 7881.07 in five sessions, its best performance since the week of 13 June.

"The [US] stock market has retraced its losses, and so bonds have lost some momentum," said Steve Guterman, bond manager at Salomon Brothers Asset Management.

US stock investors should get a respite this week as trading desks empty and volatility moderates ahead of the Thanksgiving holiday.

"I'll be looking forward to it," said Charles Henderson, chief investment officer at Chicago Trust. "It's been a little hectic."

Markets will be shut on Thursday and close three hours early on Friday. That will give investors their first extended break following the wildest month for stocks in a decade. On reflection, many will find US stocks' outlook - in the words of Abby Joseph Cohen, forecaster at Goldman, Sachs - "good, but not great."

While that's no recipe for a fourth straight year of 20 per cent-plus gains in the Dow Jones Index, it's an improvement from the past couple of weeks, when many complained of not being able to ascertain any direction.

"It looks as if we're not going to have a meltdown of those [Asian] currencies, and their economies will be able to sustain some level of growth, though a slower rate than in the past," said Henderson. "That being the case, our economic picture looks brighter than before."

Those in the spending mood say they are putting a premium on earnings predictability - no surprise when many analysts are still trying to estimate the fallout from slowing growth overseas.

Copyright: IOS & Bloomberg