US bond prices sink on Clinton spending reports

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The Independent Online
US BOND prices sank again yesterday amid fears over Bill Clinton's plans to 'jump-start' the stagnant American economy, thereby postponing promises to cut Washington's dollars 320bn (pounds 193bn) budget deficit by half.

The 30-year US long bond was off by almost a point in the early afternoon, yielding 7.56 per cent, on the heels of reports that the Democratic presidential candidate was preparing dollars 50bn-dollars 60bn in new spending next year to reflate the economy. The sell-off eased by noon, when wire services quoted an unnamed Clinton adviser as saying the stimulus would total only dollars 30bn.

But two-year US Treasury securities continued to slump, trading at 9927 32 , in very light volume near the end of yesterday's session.

Wall Street economists agreed that Mr Clinton's plans to 'front-load' his dollars 20bn-a-year public works spending programme should not have any inflationary implications in the short term, despite this latest bout of pre-election market volatility. While there might be some impact on inflation rates in 1994 and beyond, some sort of fiscal package is inevitable regardless of which candidate wins next month's election.

With Mr Clinton claiming a lead of between 12 and 17 points in most opinion polls going into last night's final televised debate, his election has been factored into most market prices. But plans to accelerate his promised spending on infrastructure have emerged over the past week, apparently in response to recent comments by Alan Greenspan, the US Federal Reserve Board chairman, who compared the current situation to the 1930s and suggested a tolerance on the part of the Fed for relatively slow growth.

The announcement by Mr Clinton's advisers yesterday of a smaller-than-expected spending package was seen as an attempt to soothe the fears on Wall Street.

'As Clinton has realised the impact on the financial markets, he has steadily trimmed his spending plan,' said Dan Seto, an economist with Nikko Securities in New York. 'Soothing market psychology seems to be a major component of their strategy.'

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