Long-term Rates Could Fall Further Before Heading Back Up, Analysts Say
NEW YORK -- Long-term interest rates, which tumbled almost a third of a percentage point last week, could ease a bit further before starting to rise again, many investment strategists say.</br></br>A relatively stable dollar and signs that economic activity is slowing from the first quarter's brisk pace "remove some of the pressure for higher inflation and rates," says James Capra, investment strategist at Shearson Lehman Government Securities Inc. "You'll make more money" buying bonds this month than selling them, he contends, following Friday's Labor Department report of a 0.2 percentage point gain in the May unemployment rate to 5.6% of the civilian work force.</br></br>"Year in and year out, you get paid if you trade in line with the employment numbers, which showed the economy in May was a touch softer than in April," Mr. Capra adds.</br></br>The data helped lower the yield on the government's latest 30-year bond to just over 9% from 9.33% on May 27. "It's a pretty good bet it could drop to 8.98% this week," predicts Roger Froehlich, president of Technical Dimensions Inc., a market forecasting service.</br></br>Even so, there is widespread concern that the recent bond rally won't last beyond the early summer. "A long-term investor should wait before buying bonds," says Sung Won Sohn, chief economist at Norwest Corp. Traders "now are convinced the Federal Reserve doesn't need to tighten credit further, so the bond market may be stable and continue to register gains," he says. "But the underlying trend for inflation is worrisome."