Bloomberg on US TREASURIES

U.S. Treasuries Fall on Speculation Dollar Slide to Curb Demand

Dec. 27 (Bloomberg) -- U.S. Treasury notes declined on concern the dollar's slump will crimp demand for the securities and as the Federal Reserve raises interest rates next year to ward off inflation.
The dollar today fell to a record low against the euro for a third straight day, sapping demand for U.S. assets. The Fed raised its target for the overnight lending rate between banks five times since June, to 2.25 percent from 1 percent. The rate will reach 3.5 percent by 2006, according to the median forecast of 61 economists polled by Bloomberg earlier this month.
``The continued slide on the dollar is probably going to hurt demand for U.S. assets in general, not only Treasuries,'' said Sharon Lee Stark, chief fixed-income strategist at Legg Mason Wood Walker Inc. in Baltimore. ``Yields are up a bit today and as the new year starts I expect them to move even higher. The U.S. economy is growing at a sustained pace and the Fed is moving benchmark rates up to a more neutral level.''
The 4 1/4 percent note maturing in November 2014 fell about 3/8, or $3.75 per $1,000 in face value, to 99 15/16 at 9:16 a.m. in New York, according to bond broker Cantor Fitzgerald LP. The yield rose 4 basis points, or 0.04 percentage point, to 4.26 percent, and is little changed from the end of 2003. Stark has said this month that the yield may rise as high as 5.5 percent in the next 12 months. Two-year yields rose 3 basis points to 3.03 percent, and are up from 1.82 percent at the end of 2003.
The U.S. Treasury will today announce the amount of two-year notes it is selling on Dec. 29, which may total $24 billion, the same as the last five monthly sales, according to Wrightson ICAP. The dollar's 8.1 percent slump against the euro and 5.8 percent versus the yen since the end of September has fed concern bidding from outside the U.S. may decline.
`Outflows'
``The drop in the dollar is leading to foreign capital outflows, and there is anxiety demand