After Morning Rally
By MIN ZENG
February 23, 2008; Page B2
Treasurys were hammered in late-session trading as U.S. stocks turned around and following a hawkish warning about inflation risks from Federal Reserve Bank of Dallas President Richard Fisher.
The selloff Friday accelerated after CNBC reported that a bailout of financial guarantor Ambac Financial Group Inc. could be announced early next week, easing some concern about subprime-mortgage turmoil that has haunted the markets since last summer.
As investors dumped government debt to get into equities, the two- and 10-year sectors ended the week on a down note, giving up a rally in the morning session.
Mr. Fisher, in an interview with Bloomberg News, said he is hearing increasing expressions of concern about inflation from executives, which has 'gotten my attention.' He also said the U.S. probably will see slower economic growth rather than a deeper downturn.
Mr. Fisher, who is a voting member of the policy-making Federal Open Market Committee, voted against the Fed's half-percentage-point interest-rate cut Jan. 30 due to concerns about inflation and a belief the Fed's prior actions would be sufficient to get the economy back on its feet.
Worries over inflation have moved to the front burner after a higher-than-expect" consumer price index Wednesday, and as crude oil and gold set records. A weak dollar also added to the worries as it pushed up import prices.
"Fisher really hit the market's nerve. His comments play into people's fear of inflation," said T.J. Marta, fixed-income strategist at RBC Capital Markets in New York. Inflation eats into the returns on fixed-income securities. "The Fed is basically fighting a two-front war with one weapon, and that isn't a good recipe."
