OT (Wall Street Topic) U.S. Treasuries buyback results

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US CREDIT OUTLOOK -- Stock watch, buyback results

NEW YORK, March 8 (Reuters) - U.S. Treasuries will watch equity and oil markets on Thursday, but neither economic data reports nor a speech by one Federal Reserve official are likely to push prices far from their current range, analysts said.

"The bond market is trying to figure out what combination of higher interest rates, softer stock prices, and higher oil prices is going to slow the economy down," said Josh Feinman, chief economist at Deutsche Asset Management Americas.

"That's why it's looking at the stock market out of one eye, and at economic data to see if there are signs of a slowdown, and, of course, at the inflation story, because benign inflation is the only thing keeping the Federal Reserve from moving rapidly to tighten credit."

The results of the Treasury Department's buyback, expected late Thursday morning, will probably have little market impact, analysts said.

The Treasury will buy back the debt, a small fraction of the $3.3 trillion outstanding, through open market operations performed by the New York Federal Reserve. The date for the transaction will be March 9 with settlement on March 13.

A second buyback by Treasury is expected later this month.

In the buyback, the first government debt buyback by the Treasury in 70 years, the government is offering to buy up to $1.0 billion in bonds.

The buyback of selected 30-year bonds takes place on Thursday and constitutes the first step in Treasury's plan to trim its borrowing costs this year by retiring up to $30 billion in government debt that pays high interest rates.

Treasury targeted bonds maturing between February 2015 and February 2020 that have coupon payments of between 7.25 percent and 11.25 percent.

Analysts said as the buybacks become more routine, the inversion of the Treasuries yield curve may ease.

In late January and early February, investors scrambled to buy long-term debt after learning that the Treasury planned to buy back some longer-dated securities.

That eagerness to buy 30-year bonds drove prices up and long-term yields down, so much so that long-term yields dipped below those on much shorter maturities, a reversal of the traditional relationship in which holders of long-term debt are compensated for their added risk with higher premium.

Only minor economic reports are due on Thursday.

The Labor Department will release new jobless claims numbers for the week ended March 4 at 8:30 a.m. (1330 GMT) on Thursday. New claims in the last week of February totaled 275,000 and data for the latest week are expected to tell again a well-known story: that labor markets are tight.

Data on wholesale inventories levels in January are also unlikely to stir the market's interest, analysts said. Wholesale inventories rose 0.4 percent in December.

Remarks by Fed Bank of Philadelphia President Edward Boehne are likely to attract attention. Boehne is scheduled to speak about the general state of the economy to the Financial Analysts of Philadelphia at 12:30 p.m. (1730 GMT) and is expected to answer questions from reporters afterward .

If the report on business conditions around the nation that the Fed released on Wednesday (the Beige Book) is any guide, Boehne's is likely to mention soaring oil prices as one of the Fed's concerns, reinforcing Wall Street's expectations that more interest rate hikes are in the offing.

In the Beige Book released on Wednesday, Fed officials voiced concerns about strong growth, worker shortages, and potential upward pressure on prices from oil costs, though they said the sharp rise was temporary.

Analysts said Treasuries would watch stocks carefully. The stock market slid sharply on Monday and Tuesday and bounced a little on Wednesday.

Changes in consumer confidence - and consumers' resulting willingness to spend money - are tied to factors like gasoline prices, job market conditions, and the stock market.

Analysts said the bond market has come to realize that the higher stocks go, the more the Fed may raise interest rates.

Greenspan is concerned that the wealth created by stock market gains encouraged consumers to increase spending, thereby creating imbalances between demand and supply in the economy.

"You do have this ongoing issue of the stock market," said Pierre Ellis, managing director and global economist at Primark Global Economics. "The Fed has almost overtly told the stock market to go down."

If the stock market does go down and stays that way, that would dampen the wealth effect that is said to be spurring consumer spending and could help bonds advance, Ellis said.

But little else besides stock market weakness could give bonds sustainable gains at this point, he said.

If February inflation readings, due next week, are subdued, bonds could do better in the short run, Ellis said.

"But it won't cause a quantum improvement because inflation can only get worse from here, not better," he said.

) copyright 2000 Reuters, Ltd.

* This amount seems to be about 3 hundredths of 1 percent of the Debt.
   The full amount targeted is almost 1 percent. (33 Billion)

-- Possible Impact (posim@hotmail.com), March 08, 2000

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