Hedgefunds

Treasurys Rise on Continuing Hedge-Fund Fears


By Leslie Wines


NEW YORK (Dow Jones) - Treasury prices rose, sending yields lower, at midday
Friday as continuing fears about hedge fund losses caused investors to seek
safe-haven instruments and overlook for the moment data indicating higher
inflation.

The yield on the 10-year note dropped 0.055% to 4.129%, its lowest level
since Feb. 16. In late trade Thursday the yield was 4.184%.

"This is risk-aversion trade," said Kim Rupert of Action Economics. "There is
fear that something disastrous is going on with hedge funds. And that fear is
bigger than concerns about economic growth and inflation."

Throughout the week rumors have swirled through capital markets that hedge
funds have suffered major losses due to the deteriorating quality of the
corporate debt of General Motors (GM.T) and Ford Motor Co. (F).

Hedge funds have been rumored to be selling off corporate debt and
commodities and switching into Treasurys.

Generally Treasury prices fall on indications of accelerating inflation,
which eats into the value of fixed-income instruments. But Friday's strong
import price news was eclipsed by the hedge fund worries.

Prices of imports rose a larger-than-expected 0.8% in April on higher costs
for oil, metals and chemicals, according to the Labor Department.

Economists had expected import prices to rise about 0.5%, according to a
survey conducted by Dow Jones.

In the past 12 months, import prices have risen 8.1%, the biggest
year-over-year gain since November.

There also was scant market reaction to news from the University of Michigan
that consumer sentiment fell for the fifth straight month to its lowest level
in two years.

However, the consumer data could later be used to back up a theory, which has
supported Treasury prices, that the economy has entered a soft phase.

The consumer sentiment index fell to 85.3 in mid-May from 87.7 in April. It's
the lowest since the start of the Iraq War in March 2003.

The decline was unexpected. Economists had forecast the index to rebound to
88.2.

The decline in the sentiment index was driven by the expectations index,
which dropped to 73.7 in May from 77.0 in the previous month, the lowest since
March 2003.

Ian Shepherdson, economist at High Frequency Economics, said reports of the
end of the economic soft-patch have been exaggerated.

"The expectations index is a leading indicator of core retail sales, and it
now signals no growth over the next two or three months. In other words, the
soft patch is not over; it has barely begun, at least in terms of retail
sales," Shepherdson said.


(END) Dow Jones Newswires

05-13-05 1223ET

12:23 051305