The eroding value of the U.S. dollar versus the Japanese yen sent interest rates futures prices plunging Monday.
Treasury bond futures declined the limit for daily trading on the Chicago Board of Trade, except for the June contract that settled with a loss only 1/32 point off the limit. This brought the June delivery to its lowest level in seven weeks.
"In the last two days, the dollar lost nearly 3% of its value versus the yen, which wipes out the interest rate advantage in Treasury securities," said Gary Dorsch, senior money-market analyst with G. H. Miller & Co., Chicago. Interest rates in the United States are about 3 percentage points higher than in Japan.
Japanese investors bought about $9 billion worth of 10-year notes and 30-year bonds in the U.S. Treasury auction last week, he said.
They probably were counting on the dollar stabilizing at 165 yen, but then it dropped as low as 160 Monday, Dorsch said.
"So Japanese investment firms were lightening up . . . because they were caught off guard by the persistant weakness in the dollar," he said.