Treasury market prices ended lower after see-sawing Friday, as remarks by Federal Reserve Chairman Alan Greenspan kept investors guessing about the timing of another interest rate cut.
Also unnerving the market was a threat by House Speaker Newt Ging-rich to allow the government to default on its debt payments."The mere fact you have such a powerful political figure playing politics . . . has caused anxieties, especially from offshore investors," said Kevin Flanagan, money market economist at Dean Witter Reynolds Inc.
The price of the Treasury's main 30-year bond closed down 3/8 point, or $3.75 per $1,000 in face value, after losing as much as 3/4 point earlier in the session. Its yield, which moves in the opposite direction, was up to 6.58 percent from 6.56 percent late Thursday.
Greenspan told Senate Banking Committee members that the economy has recovered from a slowdown earlier this year and was poised for further strength. However, he also credited the earlier economic slowdown with helping to lower inflationary pressures.
"Inflation risks have receded, and, as a consequence, the threat of severe recession has declined," Greenspan said in his semiannual assessment on the economy.
The remarks prompted an ambivalent reaction among investors. The Fed chairman's description of an improved economy dashed lingering hopes that the central bank's policymaking committee will cut a key interest rate next week. Lower rates, which are used by the Fed as a tool to rejuvenate the economy, tend to boost the value of fixed-income securities.
Still, bond prices initially rose because investors were reassured by Greenspan's depiction of tame inflation, since increased inflation can erode the value of securities that pay fixed rates of return.
"The market did a little better simply because he wasn't saying anything that would arouse fear," said Donald Fine, chief market analyst at Chase Securities.
The market resumed its retreat, though, amid lingering jitters from a powerful sell-off on Thursday. The 30-year bond fell 1 5/16 points Thursday in response to a falling dollar, rising commodity prices and a report showing surprisingly fast economic growth.
"After yesterday, the bond market is on pins and needles," Fine said.
Further nervousness grew out of Gingrich's threat on Thursday to allow a government default if the Clinton administration doesn't agree to the Republican deficit reduction plan.