AP News, August 20th, 2007
Wall Street pulled back Monday as demand for 3-year Treasury bills fell sharply, suggesting Wall Street was pessimistic about where interest rates are headed and unsure of what the Federal Reserve's next move will be.
Trading had fluctuated for much of Monday's session following the market's big rally Friday in response to the Fed's lowering of its discount rate, the interest it charges on loans to banks. The Fed said it stood ready to make further moves to keep credit market losses from hurting the economy, but because it stopped short of a cut in the more important federal funds rate, uncertainty remained on Wall Street about the policymakers' intentions. The Fed is not scheduled to meet formally until Sept. 18, which means investors could remain jittery until then.
The big rise in demand for T-bills showed that investors were looking for a short-term, relatively safe place for their money while the interest rate environment is sorted out.
Treasury bonds, which have rallied in recent weeks as investors fled to safe-haven securities, continued to move higher overall Monday. Bond prices move opposite yields. Yields on the benchmark 10-year Treasury bond fell to 4.63 percent from 4.68 late Friday, while the 3-year T bill saw yields fall nearly 100 basis points, or 1 percentage point, to 4.14 percent.
Analysts also questioned how much conviction buyers had, as much of the previous session's rally was pinned on big institutional investors like hedge funds buying shares to cover their positions. Some investors had been shorting the market _ betting stocks would move lower _ and were caught off guard when the central bank cut the discount rate.
Right after the market opened Monday, the Fed also announced it injected another $3.5 billion into the banking system. The central bank has infused the market with nearly $120 billion of liquidity since last week.
"It's a very trying market right now, and we're trying to hold on to some of the early gains, but there's a lot of uncertainties out there," said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners. "The question is if the Fed did enough to satisfy the markets, and Wall Street will be relentless until they cut the fed funds rate."
In midday trading, the Dow Jones industrials fell 58.04, or 0.44 percent, to 13,021.04. The blue chip index spent most of the morning bouncing into and out of positive territory.
Broader indexes fell. The Standard & Poor's 500 index fell 10.74, or 0.74 percent, to 1,435.20; the Nasdaq composite index fell 11.64, or 0.46 percent, to 2,493.39.
___
On the Net:
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
